Case Note & Summary
The dispute arose from an appeal filed by a suspended director of Manpasand Beverages Ltd., the corporate debtor, against an order of the National Company Law Tribunal (NCLT) rejecting an application under Section 12A of the Insolvency and Bankruptcy Code, 2016 for withdrawal of the Corporate Insolvency Resolution Process. The operational creditor, Huhtamaki PPL Ltd., had filed a petition under Section 9 of the IBC due to outstanding dues, leading to the initiation of CIRP by NCLT on 01.03.2021. Subsequently, on 03.03.2021, the parties entered into a settlement wherein the corporate debtor agreed to pay Rs.95.72 lakhs, and full payment was made by 08.03.2021, before the Committee of Creditors was constituted. The interim resolution professional filed an application for withdrawal under Regulation 30A of the IBBI Regulations, but NCLT rejected it on 13.04.2021, citing violations of the moratorium by the suspended directors. The core legal issues were whether NCLT erred in rejecting the withdrawal application despite the settlement and whether inherent powers under Rule 11 of the NCLT Rules, 2016 could be exercised. The appellant argued that the settlement was genuine and CoC was not constituted, while the IRP opposed based on moratorium violations. The Supreme Court analyzed Section 12A of IBC and Regulation 30A, noting that withdrawal is permissible with CoC approval, but before CoC constitution, it can be filed through the IRP. The court emphasized that the settlement was not disputed and full payment was made, and CoC was not constituted at the time of application. It held that NCLT should have exercised its inherent powers under Rule 11 to allow withdrawal to meet the ends of justice, as technical objections like moratorium violations should not override a bona fide settlement. The court allowed the appeal, setting aside the NCLT order and permitting withdrawal of the CIRP.
Headnote
A) Insolvency Law - Withdrawal of CIRP - Section 12A IBC and Regulation 30A IBBI Regulations - Settlement Before CoC Constitution - Operational creditor and corporate debtor entered into a settlement and full payment was made before Committee of Creditors was constituted - NCLT rejected withdrawal application citing moratorium violations - Supreme Court held that settlement was genuine and CoC not constituted, allowing withdrawal under inherent powers to meet ends of justice (Paras 3-6, 13-15). B) Insolvency Law - Inherent Powers of Tribunal - Rule 11 NCLT Rules, 2016 - Exercise for Justice and Prevention of Abuse - NCLT has inherent powers to make orders necessary for meeting ends of justice or preventing abuse of process - Supreme Court invoked Rule 11 to allow withdrawal application, overriding technical objections like moratorium violations, as settlement was bona fide and CoC not formed (Paras 12, 16). C) Insolvency Law - Moratorium Violations - Section 14 IBC - Impact on Withdrawal Application - Suspended directors made transactions during moratorium, including payments to operational creditor as per settlement - NCLT cited these violations as grounds for rejecting withdrawal - Supreme Court held that violations did not negate genuine settlement and should not impede withdrawal when CoC not constituted and ends of justice require it (Paras 15, 16).
Issue of Consideration
Whether the NCLT erred in rejecting the application under Section 12A of the Insolvency and Bankruptcy Code, 2016 for withdrawal of the Corporate Insolvency Resolution Process despite a settlement between the operational creditor and corporate debtor, and whether inherent powers under Rule 11 of the NCLT Rules, 2016 should be exercised to allow withdrawal.
Final Decision
Supreme Court allowed the appeal, set aside the NCLT order dated 13.04.2021, and permitted withdrawal of the CIRP under Section 12A of IBC, invoking inherent powers under Rule 11 of NCLT Rules, 2016
Law Points
- Inherent powers of NCLT under Rule 11 of NCLT Rules
- 2016
- Withdrawal of application under Section 12A of Insolvency and Bankruptcy Code
- Procedure under Regulation 30A of IBBI Regulations
- 2018
- Moratorium violations under IBC
- Settlement between operational creditor and corporate debtor
