Facts

Mr. Dinesh Gupta ("CD"), a former employee of Rolta India Limited ("Rolta") filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against Rolta on the basis of a claim for non – payment of arrears of salary upon termination of employment. The National Company Law Tribunal, Mumbai Bench ("NCLT") by order dated 13.05.2021, admitted the petition and Rolta's corporate insolvency resolution process ("CIRP") commenced and an interim resolution professional ("IRP") was appointed.

However, prior to the committee of creditors ("CoC") being constituted, the CD sought the IRP to file an application under Section 12A of the IBC along with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("Regulations") before the NCLT to withdraw the proceedings since the promoters of Rolta had agreed to settle his amount. However, the IRP did not comply with this requirement and therefore the CD, on his own motion, filed an application before the NCLT.

Contentions of the parties

The CD said that the application was valid in light of the finding of the Supreme Court of India ("SC") in the judgment of Swiss Ribbons v. Union of India, (2019) 4 SCC 17 ("Swiss Ribbons"), wherein the SC held that any time before the constitution of the CoC, a party could approach the NCLT to withdraw proceedings.

The CD and the promoters of Rolta argued that they had a right to withdraw the proceedings and relied on the judgment of the National Company Law Appellate Tribunal of Anuj Tejpal v. Rakesh Yadav and Oyo Hotels and Homes Pvt. Ltd., IA No.815 of 2021, Company Appeal (AT) Insolvency No.298 of 2021 ("Oyo").

The promoters of Rolta also argued that in light of the language of Regulation 30A of the Regulations, prior to the constitution of the CoC, an application for withdrawal is not subject to the consent and/ or approval or the collective wisdom of the CoC or other creditors and hence that could not be a reason to prevent its withdrawal.

The withdrawal was opposed by the IRP along with certain financial creditors ("FCs") of Rolta.

The IRP opposed the application since she had received claims in excess of Rs 5,500 crores after the commencement of the CIRP and that in particular, 567 employees had made claims  but Rolta was settling claims of only 32 employees, including the CD, all of whom had filed proceedings under Section 9 of the IBC against Rolta for non – payment. The total value of the claims from the employees was in excess of Rs. 86 crores. The IRP also highlighted that there were nearly 70 petitions pending against Rolta including 2 petitions filed by FCs before the NCLT.

The FCs, 5 public sector banks, and consequently who were dealing with public funds, had claims in excess of Rs. 5,400 crores, which represented nearly 98% of the claims of Rolta. They indicated that the total outstanding to all FCs was in excess of Rs. 8,00 crores and hence this was not a fit case for permitting withdrawal in light of the financial position of Rolta and its failure to honour financial commitments. 

The IRP and the FCs also relied on the judgment of Swiss Ribbons and the subsequent SC judgment of Indus Biotech Pvt. Ltd. vs. Kotak India Venture (Offshore) Fund & Ors., 2021 SCC OnLine SC 268 ("Indus") to highlight that in withdrawing proceedings, the interests of all stake holders had to be considered by the NCLT, since upon commencement of CIRP, proceedings are deemed to be in rem with the CD losing control over its business.

Findings

The NCLT by way of its judgment held that admittedly the promoters of Rolta were not proposing a settlement for all its employees but to only a select, and very small group of employees who had initiated proceedings against them. The NCLT observed that considering this partial and minimal settlement, the settlement lacked bona fides. The NCLT was of the view that in the event it did allow the application, it would only lead to multiplicity of proceedings since the other employees whose claims were not settled would file proceedings for the commencement of the CIRP of Rolta (and also those proceedings which were pending were also capable of being admitted). The NCLT also made a critical distinction in the case of Oyo to the effect that in Oyo's case, the claims made before the IRP were only by the operational creditors, but not by the FCs; however, in the present situation, the bulk of the claims were made by the FCs, indicating that there was a need for Rolta to undergo the CIRP. The NCLT also took note of the fact that Rolta had in the past defaulted on financial commitments, and hence, coupled with the fact that the settlement lacked bona fides, and placing reliance on the in rem nature of CIRP, NCLT dismissed the application and directed the CIRP to continue.

Khaitan comment

This judgment is a first of its kind in the nascent landscape of IBC jurisprudence. The principle laid down herein is similar to the jurisprudence of winding up under the Companies Act, 1956, in that a withdrawal of an admitted petition can be opposed by creditors. This judgment explains the power of the NCLT to adjudicate as to whether or not CIRP should continue or not and has laid down some markers as to what would be the circumstances in which a withdrawal would be permissible. This judgment also lays down the proposition that a company dealing with multiple applications for initiation of CIRP cannot enter into piecemeal settlements with some of its debtors, but would in fact have to enter into comprehensive settlements to prevent the commencement of CIRP.

The promoters of Rolta and the CD have a right of appeal to the National Company Law Appellate Tribunal from this judgment. 

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