When the Insolvency and Bankruptcy Code, 2016 ("Code") came into effect, it did not provide for withdrawal of an application filed before the Adjudicating Authority. However, Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 provided that the Adjudicating Authority may permit withdrawal of the Application on a request made by the Applicant before its admission.
Thereafter, vide The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, Section 12A was added to the Code and Regulation 30A was added to the Insolvency Resolution Process for Corporate Persons Regulations, 2016.
Section 12A of the Code provides that 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. This however has to be read with Regulation 30A which provides for an additional stipulation that an application for withdrawal under section 12A shall be submitted to the interim resolution professional or the resolution professional, as the case may be, in Form FA of the Schedule before issue of invitation for expression of interest under Regulation 36A.
Thus, the Application for withdrawal could be filed only:
a) with the approval of ninety per cent voting share of the committee of creditors; and
b) before issuance of the invitation for expression of interest (inviting resolution plans) under Regulation 36A.
An application under section 60(5) of the Code was filed by the Resolution Professional before the NCLT Chennai in the matter of Brilliant Alloys Private Limited being M.A./536/2018 in CP/582/IB/CB/2017 seeking withdrawal of the Application moved under the Code. The Application was however filed after the issuance of the expression of interest. Keeping in view Section 12A and also Regulation 30A, the said application was dismissed by the NCLT.
Being aggrieved by the said order, the parties filed a Special Leave Petition being SLP No. 31557/2018 (Brilliant Alloys Private Limited v. Mr. S. Rajagopal & Ors.) before the Supreme Court of India. The Apex Court noted that the only reason why the withdrawal was not allowed, though agreed to by the Corporate Debtor as well as the Financial Creditor and the Operational Creditor, is because Regulation 30A states that withdrawal cannot be permitted after issue of invitation for expression of interest. The Supreme Court allowed the settlement and held as under:
"According to us, this Regulation has to be read along with the main provision Section 12A which contains no such stipulation.
Accordingly, this stipulation can only be construed as directory depending on the facts of each case.
Accordingly, we allow the Settlement that has been entered into and annul the proceedings."
Thus, the Supreme Court did not explicitly strike down Regulation 30A, but construed it to be directory in terms of the facts of each case. In view of the aforesaid decision, the Adjudicating Authority may permit for withdrawal of Application even after the issuance of the expression of interest (under Regulation 36A of the Insolvency Resolution Process for Corporate Persons Regulations, 2016).
Although the aforesaid decision strives to take care of the interest of the parties and allows them to settle or withdraw the application at any stage. This decision can, however, be misused by certain creditors who may only file frivolous applications under the Code only for the purposes of recovery which is not the objective of the Code
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