The law of insolvency and bankruptcy is in its evolving phase, learning from the past slipups and longing for its improvement for the future. The law of withdrawal of the process initiated under the Insolvency & Bankruptcy Code 2016 ("Code") is also spreading its wings along with the overall expansion of the Code.
Recently, the legislature had inserted Section 12A and also added a Regulation 30A to the Code providing for such withdrawal. The said provisions deal with the situation of a settlement between the creditors and the promoters of the Corporate Debtor, in respect of which the insolvency process has been initiated, and provide that the application for withdrawal may be filed only before the invitation of expression of interest.
The question arises here is as to what happens to the proceedings initiated under Code where the two sides have arrived at a settlement after an issue of the invitation of Expression of Interest? This controversy has been settled by the Hon'ble Supreme Court recently in a matter namely Brilliant Alloys Private Limited vs. Mr. S. Rajagopal & Ors. (SLP Civil No. 31557 of 2018). The Hon'ble Supreme Court has held that the Regulation 30A has to be read along with the main provision of Section 12A which contains no such stipulation and hence such stipulation can only be construed as directory depending upon the facts of each case.
An overview of withdrawal of Corporate Insolvency Resolution Process (CIRP) Proceedings:
Withdrawal of Application before admission has been provided under Rule 8 of the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016 ("Relevant Rules"), however, there have been cases where the parties have reached settlement post the admission of CIRP application. The insolvency and Bankruptcy Code 2016 had no provisions dealing with the withdrawal of CIRP Application post admission.
The aforesaid controversy reached the Hon'ble Supreme Court in the matter of Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Manager LLP (Civil Appeal No. 9279 of 2017) wherein an interesting question was raised before the Hon'ble Supreme Court that whether, in view of Rule 8 of the I&B (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal could utilize the inherent power recognized by Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 to allow a compromise before it by the parties after admission of the matter. The Apex court has utilized its power provided in Article 142 of Indian Constitution and allowed the settlement between the parties by taking consent terms dated 28.06.2017 and 12.07.2017 on record. The said observation was followed in other decision such as Mothers Pride Dairy India Private Limited v. Portrait Advertising and Marketing Private Limited and in Uttara Foods and Feeds Private Limited v. Mona Pharmachem (Civil Appeal No. 18520/2017), wherein the settlement was allowed and said applications were disposed by utilizing its inherent power under Article 142 of the Indian Constitution.
The Insolvency Law Committee ("Committee") was constituted on November 16, 2017, to make the recommendation to the Government in relation to the issues arising from the implementation of IBC ("Report"). 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.
Pursuant to the aforesaid recommendation of Committee, an ordinance was promulgated on June 6, 2018 and the hindrance in a withdrawal of application after the acceptance by the Adjudicating Authority has been cured by inserting Section 12A to IBC and to complement the change in the Code a Regulation 30A was inserted w.e.f. 04-07-2018 wherein it was provided that withdrawal of an Application admitted under Sections 7, 9 or 10 of the Code by the Hon'ble Adjudicating Authority can be filed before the issue of invitation for expression of interest under Regulation 36A.
Recently a controversy has arisen in a matter namely Mr. Vimal Chandrunwal Vs. Brilliant Alloys Private Limited in MA/536/2018 in CP/582/IB/CB/2017 wherein the settlement of all the claims was entered into, after publication of Expression of Interest. The Hon'ble NCLT, Division Bench Chennai was of the opinion that the Tribunal cannot pass an order under Section 60(5) of the Code ignoring the conditional clause in the Regulation 30A of IRPCP Regulations to submit Applications u/s12A of the Code before issue of invitation for expression of Interest, hence the application was dismissed.
Subsequent to the dismissal, a Special Leave Petition was filed before the Hon'ble Supreme court in a case titled Brilliant Alloys Private Limited vs. Mr. S. Rajagopal & Ors. (SLP Civil No. 31557 of 2018) wherein the Hon'ble Supreme Court held that the Regulation 30A which states that withdrawal cannot be permitted after issue of invitation for expression of interest, has to be read along with the main provision of Section 12A which contains no such stipulation and hence such stipulation can only be construed as directory depending upon the facts of each case.
The judgment in Brilliant Alloys is clear in its applicability, however, it raises certain questions as to the applicability of Regulation 30A on the other cases of withdrawal. It would, therefore, be interesting to observe as to how the Hon'ble Supreme Court would interpret the law of withdrawal of the corporate insolvency resolution process in the upcoming days.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
