Dinesh Gupta Vs. Rolta India Limited - Withdrawal Application under section 12A & proceeding in rem.

NCLT  Mumbai-5 (06.08.2021) in Dinesh Gupta Vs. Rolta India Limited [M.A. No. 1196/2021 In C.P. No.1069/I&BP/NCLT/MAH/2020] held that; 

•  . . when a petition under is admitted/triggered it becomes a proceeding in rem and even the creditor who has triggered the process would also lose control of the proceedings as Corporate Insolvency Resolution Process is required to be considered through the mechanism provided under the IB Code.

• Decisions of the Hon’ble Supreme Court and the Hon’ble NCLAT clearly demonstrate that even in the event the original creditor and corporate debtor settle their disputes prior to constitution of the COC, this Hon’ble Tribunal still has sufficient jurisdiction to reject an application under Section 12A of the IBC if the facts and circumstances of the case before it warrant such rejection.

• It is settled law that a judicial authority ought not to pass orders which would aid and/or further multiplicity of proceedings. In the present case, considering that over 75 nos. of Petitions under Sections 7 and 9 of the IBC are already pending against the Corporate Debtors, allowing the present withdrawal will evidently result in multiplicity of proceedings which ought to be avoided by this Tribunal.

• Hon’ble Supreme Court in “Swiss Ribbons Pvt. Ltd. vs. Union of India” held that “at any stage where the Committee of Creditors is not yet constituted, a party can approach NCLT directly, the Tribunal may in exercise of the inherent powers under Rule 11 of NCLT Rules may allow or disallow an application for withdrawal of CIRP. The claim and rights of other creditors as it stands is not prejudiced/altered by the withdrawal of CIRP of Corporate Debtor.”

• The Bench has no doubt in its mind that considering that CIRP proceedings are in rem, the substantial claims of Financial Creditors cannot be disregarded or ignored in view of the purported settlement of certain employees of the Corporate Debtor.

Excerpts of the order; 

# 1. This is an Application filed by the Mr. Dinesh Gupta, the Operational Creditor who initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, for withdrawal of the Company Petition No. 1069 of 2020, admitted u/s 9 of the Code by an order of this Bench dated 13.05.2021.

# 2. The Applicant is approaching this Bench on its own to seek withdrawal of the Company Petition as the Insolvency Resolution professional (IRP) has delayed filing of the application under Section 12A of the Code.

# 3. The Applicant was an employee of the Corporate Debtor from 01.04.2013. the Applicant was relieved from the services of the Corporate Debtor on 14.06.2019 without settlement of arrears of salary and other dues. Therefore, Applicants / Operational Creditor/ Petitioner along with various other ex-employees filed the Petitions u/s 9 of the Insolvency and Bankruptcy Code, 2016 (Code) before this Hon'ble Tribunal. This Bench while hearing the Petitions took up one Petition in respect of each Rolta Group Company for hearing and heard both the parties extensively on 16.04.2021and reserved for Orders. 4. This Bench proceeded to pass order dated 13.05.2021 admitting the present petition under Section 9 of the Code, initiating Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor and appointed Ms. Vandana Garg as IRP of the Corporate Debtor.

# 5. Thereafter, further negotiations took place between the parties and the Corporate Debtor through its promoter director Mr. Kamal Singh, on or about 25.05.2021, agreed to settle the dues and make payment of the settlement amount to all the Applicants / Operational Creditors, who had filed the Applications before this Bench. Thereafter, settlement agreements were duly signed between the parties on 25.05.2021.

# 6. On 25.05.2021, Ms. Vandana Garg, who has been appointed as the Interim Resolution Professional (IRP) by this Hon'ble Tribunal took charge of the affairs of the Corporate Debtors.

# 7. The Applicants / Operational Creditors represented to the IRP that the Applicants entered into settlement and, therefore, requested the IRP to file an Application u/s 12A of the Code. As the IRP did not file the Applications immediately, the Applicants / Operational Creditors preferred the Applications u/s 12A of the Code before this Hon'ble Tribunal.

# 9. In the meanwhile, withdrawal of the Applications u/s 12A is vehemently opposed by the Financial Creditors and some of the ex employees who have not filed any Petition before this Tribunal.

# 10. It is submitted that the Financial Creditors and the ex-employees who have not filed any Petitions before this Bench cannot oppose any settlement that is arrived at between the Applicants / Operational Creditors and the promote director. It is further submitted that the

Financial Creditors have already filed their Petitions before this Bench which are still pending and necessary adjudication should take place in its own course. The ex-employees who have not filed any Petition before this Hon'ble Bench have no say to intervene in the present Applications as they have yet to file their Petitions before this Tribunal.

# 11. It is further submitted by the Applicant that the Financial Creditors have valuable assets of the Corporate Debtor duly charged to them and they can recover their dues by resorting to SARFAESI Act, 2002 or any other provisions.

# 12. The legislature, in its wisdom, amended the provisions of the Code in the year 2018 and incorporated the provision of Section 12A in the Code whereby the adjudicating authority may allow withdrawal of the Applications admitted u/s 7, 9 and 10 of the Code. In the present case, even the Committee of Creditors is also not formed and as such the approval of 90% voting share of the Committee of Creditors is also not required. Therefore, this Bench has to exercise its jurisdiction and allow withdrawal of the Applications filed by the Applicants / Operational Creditors u/s 12A of the Code.

# 18. It is clarified by the Promoters that during the hearing held on 13.06.2021, it was incorrectly submitted that the Promoter has not settled with all employees whose Petitions were pending as on 10.06.2021. As per the list provided by the IRP, the Promoter has settled

with all employees. Thus, in total, 32 employees who have filed application under Section 9 of the Code as on 27.05.2021, 10.06.2021 and 23.06.2021, have been settled. These employees have also filed their withdrawal memos.

# 21. Concomitantly, Section 12A now read with the amended Reg. 30A in its current form envisages the withdrawal mechanism to be adopted in Pre-COC and Post-COC scenarios. Reg 30A(1) as amended is reproduced hereinbelow for reference:

• (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.

# 22. The legislative intent behind amendment of Regulation 30A would clearly show that at a pre COC stage, the right of an Applicant to seek withdrawal is not subject to any consent or approval or the collective wisdom of the other creditors. The same is only triggered once a COC is constituted along with the respective voting rights being ascertained. It is further submitted that at the time of considering an application which is at a pre COC stage, neither the claim nor any rights of any creditor are prejudiced inasmuch as their independent right to pursue their claims and seek initiation of CIRP proceedings is kept intact.

# 23. “The Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. vs. Union of India has categorically held that at any stage where the CoC is not yet constituted, a party can approach NCLT directly, the Tribunal may in exercise of the inherent powers under Rule 11 of NCLT Rules may allow or disallow an application for withdrawal of CIRP. The claim and rights of other creditors as it stands is not prejudiced/altered by the withdrawal of CIRP of Corporate Debtor.” 

# 24. This has been affirmed by this Tribunal in the case of

• a. ISGEC Heavy Engineering Limited V/s Cane Agro Energy (India) Limited (Para iii/ Page 127)

• b. Haresh Enterprises v. Mohota Industries Limited (Para 9.1/Page 176)

# 25. And Hon’ble Appellate Tribunal in the case of 

• a. Hon’ble Tribunal in the recent judgment of Anuj Tejpal vs Rakesh Yadav – (Para 41, Page 167) (“OYO Hotels Case”).

• b. Mr. K.C. Sanjeev vs. Mr. Easwara Pillai Kesavan Nair (Para 5/Page 181).

# 30. That it may be mentioned here that only the three Petitions wherein admission orders dated 13.05.2021 have been passed for three Corporate Debtors are being withdrawn and remaining more than 70 Petitions are pending before various Benches are not being withdrawn despite settlement agreements with the operational creditors/employees. Further, there are no settlement agreements filed in Company Petitions filed by the following Financial Creditors and pending before the Hon’ble NCLT Mumbai Bench- 1:

• a. Union Bank of India V/s Rolta India Ltd C.P.(IB)530/MB/2020;

• b. Value Partners Greater China High Yield Income Fund & Anr V/s Rolta India Ltd C.P.(IB)- 4375/(MB)/2018

Without withdrawal of all the Company Petitions, the withdrawal in the three petitions would mean the multiplicity of litigation and readmission of the Corporate debtors to CIRP.

# 37. The Hon’ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. [(2019) 4 SCC 17] clearly directed that interest of all stakeholders have to be considered while accepting or disallowing an application for withdrawal.

# 38. That the Hon’ble Supreme Court has recently in the matter of Indus Biotech Pvt. Ltd. vs. Kotak India Venture (Offshore) Fund & Ors. (2021 SCC OnLine SC 268) has clearly observed that when a petition under is admitted/triggered it becomes a proceeding in rem and even the creditor who has triggered the process would also lose control of the proceedings as Corporate Insolvency Resolution Process is required to be considered through the mechanism provided under the IB Code.

# 40. The underlying principle, therefore, from all the above noted decisions is that the reference to the triggering of a petition under Section 7 of the IB Code to consider the same as a proceeding in rem, it is necessary that the Adjudicating Authority ought to have applied its mind, recorded a finding of default and admitted the petition. On admission, third party right is created in all the creditors of the corporate debtors and will have erga omnes effect. The mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering of a proceeding in rem. Hence, the admission of the petition for consideration of the Corporate Insolvency Resolution Process is the relevant stage which would decide the status and the nature of the pendency of the proceedings and the mere filing cannot be taken as the triggering of the insolvency process.……”

# 41. That hence, it is evidently clear that the applicants have lost control of the proceedings and the proceedings now are a proceeding in rem. Therefore, the applicant today does not have an inherent right to seek withdrawal before this Hon’ble Tribunal, without consideration of the all the claims and Petitions filed against the Corporate Debtors.

# 42. That the Hon’ble National Company Law Appellate Tribunal in the matter of Jai Kishan Gupta vs. Green Edge Buildtech LLP &Ors. (2019 SCC OnLine NCLAT 916) did not accept the plea of an Appellant and did not intervene in the order passed by the Hon’ble NCLT whereby the notice was issued on objections raised by the Creditors and the application to withdraw on settlement was not allowed in view of the Claims received by the IRP and further directed the settlement to be considered by the COC (which was constituted in the meanwhile).

# 43. That in a similar situation the Hon’ble NCLT Principal Bench did Ranjeet Ramakrishna Yadav vs. JNC Construction Pvt. Ltd. [C.P.(IB) No. 272(PB)/2019] vide its order dated …07.2018, directed the Applicant and the Ex-management to propose a plan to settle all the claims received by IRP.

# 44. Not only the Hon’ble Supreme Court, NCLAT and NCLAT but also the bankruptcy law committee report 2018 which brought about changes in Section 12A, categorically discouraged settlement with individual Creditors. The Relevant Part is being reproduced:

• “…Para 29: it was agreed that once the CIRP is initiated, it is no longer a proceeding only between the applicant creditor and the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. …”

Submissions by the Financial Creditor/Intervenor:

# 48. It is submitted that the present case is not a fit case for this Tribunal to exercise its discretion under Section 12A of Insolvency and Bankruptcy Code, 2016. The present case is a fit case for this Tribunal to exercise its discretion in rejecting the present application under Section 12A.

# 49. In support of the aforesaid submission, the Financial Creditors rely upon the following judgments in respect of the scope and ambit of Section 12A:

• a. Swiss Ribbons V. Union of India, (2019) 4 SCC 17

• b. Indus Biotech V. Kotak India, 2021 SCC Online SC 268

• c. Jai Kishan Gupta vs. Green Edge Buildtech LLP, Company Appeal (AT) (Ins) No. 969-970 of 2019

• d. CFM Assets Reconstruction Pvt. Ltd. vs. Vishram Narayan Panchpor,IA 1198/MB in CP 3049/2019

• e. Ranjeet Ramakrishna Yadav Vs. JNC Construction Pvt. Ltd., [CP(IB)No. 272(PB)/2019]

# 50. The aforesaid decisions of the Hon’ble Supreme Court and the Hon’ble NCLAT clearly demonstrate that even in the event the original creditor and corporate debtor settle their disputes prior to constitution of the COC, this Hon’ble Tribunal still has sufficient jurisdiction to reject an application under Section 12A of the IBC if the facts and circumstances of the case before it warrant such rejection.

# 58. It is settled law that a judicial authority ought not to pass orders which would aid and/or further multiplicity of proceedings. In the present case, considering that over 75 nos. of Petitions under Sections 7 and 9 of the IBC are already pending against the Corporate Debtors, allowing the present withdrawal will evidently result in multiplicity of proceedings which ought to be avoided by this Tribunal.

Findings:

# 64. The Bench is also aware of the fact that the present Application is not strictly speaking as per the procedure prescribed in Regulation 30A of the CIRP Regulations. The Regulation 30A of the CIRP Regulations requires that the Applicant have to put any application for withdrawal under Section 12A through the IRP, before the constitution of the Committee of Creditors. However, this Bench is not going to get into that issue in terms of the view of the Hon’ble Supreme Court in “Swiss Ribbons Pvt. Ltd. vs. Union of India” that “at any stage where the Committee of Creditors is not yet constituted, a party can approach NCLT directly, the Tribunal may in exercise of the inherent powers under Rule 11 of NCLT Rules may allow or disallow an application for withdrawal of CIRP. The claim and rights of other creditors as it stands is not prejudiced/altered by the withdrawal of CIRP of Corporate Debtor.”

# 65.  . . . The Bench is fully aware that after passing the “Admission Order” dated 13.05.2021 and after the commencement of CIRP, the proceeding are in rem and therefore, any decision regarding the continuation or otherwise of CIRP has to be decided in the interest of all stakeholders and not just a handful of employees. The Bench is fully aware of the fact that under Section 53 of IBC the debts of the Workmen rank equally with the financial debt owed

to the secure/ unsecured creditors.

# 66. Therefore, the fact cannot be ignored while taking a decision, the Bench also has to take into account the interest of all stakeholders. Before taking this discussion further the Bench would like to rely upon some of the prominent Judgments in respect of the scope and ambit of Section 12A of IBC. The Hon’ble Supreme Court in “Swiss Ribbons Pvt. Ltd. vs. Union of India & Ors.” [(2019) 4 SCC 17] clearly directed that interest of all stakeholders have to be considered while accepting or disallowing an application for withdrawal:

• “ 82…… We make it clear that at any stage where the Committee of Creditors is not yet constituted, a party can approach NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case.

# 67. The Hon’ble Supreme Court has recently in the matter of Indus Biotech Pvt. Ltd. vs. Kotak India Venture (Offshore) Fund & Ors. (2021 SCC OnLine SC 268) has clearly observed that when a petition under is admitted/triggered it becomes a proceeding in rem and even the creditor who has triggered the process would also lose control of the proceedings as Corporate Insolvency Resolution Process is required to be considered through the mechanism provided under the IB Code. The relevant extracts of the Indus Biotech Judgment are reproduced hereunder for ready reference:

• 26. The underlying principle, therefore, from all the above noted decisions is that the reference to the triggering of a petition under Section 7 of the IB Code to consider the same as a proceedings in rem, it is necessary that the Adjudicating Authority ought to have applied its mind, recorded a finding of default and admitted the petition. On admission, third party right is created in all the creditors of the corporate debtors and will have ergaomnes effect. The mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering of a proceeding in rem. Hence, the admission of the petition for consideration of the Corporate Insolvency Resolution Process is the relevant stage which would decide 7 the status and the nature of the pendency of the proceedings and the mere filing cannot be taken as the triggering of the insolvency process.……”

# 68. That in a similar situation the Hon’ble NCLT Principal Bench did Ranjeet Ramakrishna Yadav vs. JNC Construction Pvt. Ltd. [C.P.(IB) No. 272(PB)/2019] vide its order dated …07.2018, directed the Applicant and the Ex-management to propose a plan to settle all the claims received by IRP. The Hon’ble Principal Bench NCLT held as follows:

• “….In the present case settlement was reached on 18.06.2019 and CoC has been constituted on 19.06.2019. In the mean while the Interim Resolution Professional, who is present in the Court has received 308 claims from the other financial creditor-home buyers. It is true that in some of the earlier cases we have taken the view that even if the claims have been filed before the IRP and the Committee sof Creditors has not been constituted then the application for withdrawal could be entertained and allowed. However, in the present case the CoC has been constituted day after the compromise has been entered and the claims as on today by 308 other home buyers have also been filed. Therefore, we prefer to issue notice of the application to the corporate debtor with the object of seeking its response as to whether it is prepared to satisfy the claims of each and everyone as per the record with the IRP / Corporate Debtor. In the absence of satisfying the claim of each and every financial creditor/ operational creditor it may not be possible to permit the withdrawal of CIR Process by allowing the instant application as it would result in multiplication of litigation and even the transaction of settlement/ compromise would be hit by the concept of preferential transaction.

# 70. All above decision of Hon’ble Supreme Court and NCLAT clearly shows that even in the event of the original creditor the Corporate Debtor settling their disputes prior to the constitution of the CoC, the Tribunal has sufficient jurisdiction to reject an application under Section 12A of the IBC if the facts and circumstances of the case warrants such rejection.

# 71. The Bench also notes that this Corporate Debtor in the past had defaulted in the repayment of its financial obligation to its employees and Financial Creditor. The Bench also is also aware of the fact that a Judicial authority ought not to pass Orders which would lead to further multiplicity of proceedings. Even if this Bench permits withdrawal, it is a fact that all

the dues of all the employees of the Corporate Debtor Company are not being settled. As the Bench is aware and as submitted by the RP, about more than 100 employees have lodged their claims against the Corporate Debtor, However, only some employees’ claims are being settled by the ex-management/ Promoter of the Company. Therefore, the purported settlement lacks bona fide. The Bench, therefore, is of the considered view that, be that as it may, the interest of the employees would in any event will be taken care of during the CIRP of the Corporate Debtor and they being Operational Creditors will be entitled to their rights as provided for under the IBC. The Bench has no doubt in its mind that considering that CIRP proceedings are in rem, the substantial claims of Financial Creditors cannot be disregarded or ignored in view of the purported settlement of certain employees of the Corporate Debtor.

# 72. In view of the above, this Bench dismisses IA 1196 of 2021 in CP 1069 of 2020 filed by Mr. Dinesh Gupta under Section 12A of the IBC and the CIRP against the Corporate Debtor Company would continue.

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Brilliant Alloys Private Limited Vs. Mr. S. Rajagopal & Ors. - The court held that Regulation 30A has to be read along with Section 12A & can only be construed as directory depending on the facts of each case.

Supreme Court (14.12.2018) in Brilliant Alloys Private Limited Vs. Mr. S. Rajagopal & Ors. [Petition(s) for Special Leave to Appeal (C) No(s). 31557/2018] held that;

• The only reason why the withdrawal was not allowed, though agreed to by the Corporate Debtor as well as the Financial Creditor -State Bank of India and the Operational Creditor-Respondent No.3, is because Regulation 30A states that withdrawal cannot be permitted after issue of invitation for expression of interest. 

• 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. 

 

Excerpts of the Order; 

The only reason why the withdrawal was not allowed, though agreed to by the Corporate Debtor as well as the Financial Creditor -State Bank of India and the Operational Creditor-Respondent No.3, is because Regulation 30A states that withdrawal cannot be permitted after issue of invitation for expression of interest. 

 

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.

 

The Special Leave Petition is disposed of accordingly.

 

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Blogger’s comments; Regulation 30A stands amended w.e.f. 25.07.2019 & amended regulation reads as under;

 

# 30 A. 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 FA 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 subregulation (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.]

 

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Andhra Bank vs Sterling Biotech Ltd. - As the application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable.

NCLAT(2019.08.28) in Andhra Bank & Anr. vs Sterling Biotech Ltd. & Anr [Company Appeal (AT) (Insolvency) No. 601 & 612 of 2019] held that;

• # 12. From Section 12A and the decision of the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ (Supra), it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the ‘I&B Code’ on the basis of which the ‘Corporate Insolvency Resolution Process’ was initiated.
• # 13. In view of the aforesaid provisions of law, we hold that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’.
• # 14. In the present case, the ‘Corporate Insolvency Resolution Process’ was initiated pursuant to an application under Section 7 filed by the ‘Andhra Bank’ (Appellant herein). The application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable.

Excerpts of the order;

28.08.2019 The main grievance of the Appellant – ‘Shweta Vishwanath Shrike & Ors’ (employees of the ‘Corporate Debtor’) is that though the application under Section 12A of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the I&B Code’) was filed at the instance of the ‘Promoter’ approved with more than 90% voting share of the ‘Committee of Creditors’, but it was rejected by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai on the ground that the ‘Promoter’ not eligible to file the ‘resolution plan’ under Section 29A cannot file the application under Section 12A of the ‘I&B Code’. The impugned order dated 8th May, 2019 passed by the Adjudicating Authority has also been challenged by the ‘Andhra Bank’ in Company Appeal (AT) (Ins.) No. 612 of 2019 and the ‘Resolution Professional’ in Company Appeal (AT) (Ins.) No. 527 of 2019, but on different grounds.

# 2. Learned counsel appearing on behalf of the ‘Andhra Bank’ submits that Section 29A is not applicable to an application filed under Section 12A for withdrawal of application under Section 7 filed by Andhra Bank, if the Committee of Creditors accept the same with more than 90% of the voting share.

# 3. The ‘Resolution Professional’ has challenged the order dated 8th May, 2019 insofar it relates to observations made by the Adjudicating Authority against Mr. Sundaresh Bhat (‘Resolution Professional’).

# 4. Notices were issued on the Respondents. The ‘Andhra Bank’, lead Bank of the ‘Committee of Creditors’, has already filed an appeal and challenged the impugned order.

# 5. Mr. Nitesh Rana, learned counsel for ‘Enforcement Directorate’; Mr. Vishwanath, Advocate for ‘SEBI’; Mr. C. Balooni, Assistant Director, Ministry of Company Affairs and Mr. Sukant Vats, Public Prosecutor, Central Bureau of Investigation, appear and submit that they are investigating the matter against the ‘Corporate Debtor’ and its promoters, Directors and officers and role of other public servants.

# 6. Learned counsel appearing on behalf of the ‘Enforcement Directorate’ submit that the assets of the ‘Corporate Debtor’ are based on the proceeds of the crime and therefore, it cannot be given to any person.

# 7. The question arises for consideration in these appeals is whether Section 29A of the ‘I&B Code’ is applicable to the applicant, if he intends to withdraw the petition under Section 7 or 9, if the Committee of Creditor, approves a proposal with 90% voting share, in terms of Section 12A.

# 8. Section 29A relates to ineligibility of a “resolution applicant”, which is as follows:

“29A. Persons not eligible to be resolution applicant.─ A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person -

(a) is an undischarged insolvent;

(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949;

(c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan;

Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor.

Explanation I.—For the purposes of this proviso, the expression “related party” shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date.

Explanation II.—For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;’;

(d) has been convicted for any offence punishable with imprisonment —-

(i) for two years or more under any Act specified under the Twelfth Schedule; or

(ii) for seven years or more under any other law for the time being in force:

Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment:

Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I;”

(e) is disqualified to act as a director under the Companies Act, 2013;

“Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I;

(f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;

(g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code;

“Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;

(h) has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code and such guarantee has been invoked by the creditor and remains unpaid in full or part;

(i) has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or

(j) has a connected person not eligible under clauses (a) to (i)

Explanation.— For the purposes of this clause, the expression “connected person” means—

(i) any person who is the promoter or in the management or control of the resolution applicant; or

(ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or

(iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii):

Provided that nothing in clause (iii) of this Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor:

Provided further that the expression “related party” shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date;

‘Explanation II.—For the purposes of this section, “financial entity” shall mean the following entities which meet such criteria or conditions as the Central Government may, in consultation with the financial sector regulator, notify in this behalf, namely:—

(a) a scheduled bank;

(b) any entity regulated by a foreign central bank or a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding;

(c) any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999;

(d) an asset reconstruction company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(e) an Alternate Investment Fund registered with the Securities and Exchange Board of India;

(f) such categories of persons as may be notified by the Central Government.”

# 9. If any person, including the ‘Promoter’/ ‘Director’ is ineligible in terms of any one or more clauses of Section 29A, he/she is not entitled to file any ‘resolution plan’ individually or jointly or in concert with another.

# 10. In so far Section 12A is concerned, it relates to withdrawal of the application filed by an “applicant” under Section 7 or Section 9 of the I&B Code, if the ‘Committee of Creditors’ with more than 90% voting share approves the proposal as is apparent from Section 12A and reads as follows:

“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 ninety per cent. voting share of the committee of creditors, in such manner as may be specified.”

# 11. In ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.- ‘2019 SCC Online SC 73’, the Hon’ble Supreme Court of India considered the stages in which an application can be withdrawn including Section 12A observed and held :

• “75. Since the financial creditors are in the business of moneylending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor. Even at the time of granting loans, these banks and financial institutions undertake a detailed market study which includes a techno-economic valuation report, evaluation of business, financial projection, etc. Since this detailed study has already been undertaken before sanctioning a loan, and since financial creditors have trained employees to assess viability and feasibility, they are in a good position to evaluate the contents of a resolution plan. On the other hand, operational creditors, who provide goods and services, are involved only in recovering amounts that are paid for such goods and services, and are typically unable to assess viability and feasibility of business. The BLRC Report, already quoted above, makes this abundantly clear.
• 76. Quite apart from this, the United Nations Commission on International Trade Law, in its Legislative Guide on Insolvency Law (the UNCITRAL Guidelines) recognises the importance of ensuring equitable treatment to similarly placed creditors and states as follows:
• “Ensuring equitable treatment of similarly situated creditors
• 7. The objective of equitable treatment is based on the notion that, in collective proceedings, creditors with similar legal rights should be treated fairly, receiving a distribution on their claim in accordance with their relative ranking and interests. This key objective recognises that all creditors do not need to be treated identically, but in a manner that reflects the different bargains they have struck with the debtor. This is less relevant as a defining factor where there is no specific debt contract with the debtor, such as in the case of damage claimants (e.g. for environmental damage) and tax authorities. Even though the principle of equitable treatment may be modified by social policy on priorities and give way to the prerogatives pertaining to holders of claims or interests that arise, for example, by operation of law, it retains its significance by UNCITRAL Legislative Guide on Insolvency Law ensuring that the priority accorded to the claims of a similar class affects all members of the class in the same manner. The policy of equitable treatment permeates many aspects of an insolvency law, including the application of the stay or suspension, provisions to set aside acts and transactions and recapture value for the insolvency estate, classification of claims, voting procedures in reorganisation and distribution mechanisms. An insolvency law should address problems of fraud and favouritism that may arise in cases of financial distress by providing, for example, that acts and transactions detrimental to equitable treatment of creditors can be avoided.”
• 77. NCLAT has, while looking into viability and feasibility of resolution plans that are approved by the Committee of Creditors, always gone into whether operational creditors are given roughly the same treatment as financial creditors, and if they are not, such plans are either rejected or modified so that the operational creditors’ rights are safeguarded. It may be seen that a resolution plan cannot pass muster under Section 30(2)(b) read with Section 31 unless a minimum payment is made to operational creditors, being not less than liquidation value. Further, on 5-10-2018, Regulation 38 has been amended. Prior to the amendment, Regulation 38 read as follows:
• “38. Mandatory contents of the resolution plan.—(1) A resolution plan shall identify specific sources of funds that will be used to pay the—
• (a) insolvency resolution process costs and provide that the insolvency resolution process costs, to the extent unpaid, will be paid in priority to any other creditor;
• (b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the adjudicating authority; and
• (c) liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.” Post amendment, Regulation 38 reads as follows:
• “38. Mandatory contents of the resolution plan.—(1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. (1-A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.” The aforesaid Regulation further strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors’ rights, together with priority in payment over financial creditors.
• Section 12-A is not violative of Article 14
• 79. Section 12-A was inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from 6-6-2018. It reads as follows:
• “12-A. Withdrawal of application admitted under Sections 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 ninety per cent voting share of the Committee of Creditors, in such manner as may be specified.”
• 80. The ILC Report of March 2018, which led to the insertion of Section 12-A, stated as follows:
• “29.1. Under Rule 8 of the CIRP Rules, NCLT may permit withdrawal of the application on a request by the applicant before its admission. However, there is no provision in the Code or the CIRP Rules in relation to permissibility of withdrawal post admission of a CIRP application. It was observed by the Committee that there have been instances where on account of settlement between the applicant creditor and the corporate debtor, judicial permission for withdrawal of CIRP was granted [Lokhandwala Kataria Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP [Lokhandwala Kataria Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP, (2018) 15 SCC 589] ; Mothers Pride Dairy India (P) Ltd. v. Portrait Advertising and Marketing (P) Ltd. [Mothers Pride Dairy India (P) Ltd. v. Portrait Advertising and Marketing (P) Ltd., 2017 SCC OnLine SC 1789] ; Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem [Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem, (2018) 15 SCC 587] ]. This practice was deliberated in light of the objective of the Code as encapsulated in the BLRC Report, that the design of the Code is based on ensuring that “all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution.” Thus, it was agreed that once CIRP is initiated, it is no longer a proceeding only between the applicant creditor and the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors.
• 29.2. On a review of the multiple NCLT and NCLAT judgments in this regard, the consistent pattern that emerged was that a settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted, and not only the applicant creditor and the debtor. On this basis read with the intent of the Code, 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. It was specifically discussed that Rule 11 of the National Company Law Tribunal Rules, 2016 may not be adopted for this aspect of CIRP at this stage [as observed by the Hon’ble Supreme Court in Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem [Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem, (2018) 15 SCC 587] ] and even otherwise, as the issue can be specifically addressed by amending Rule 8 of the CIRP Rules.” (emphasis in original) Before this section was inserted, this Court, under Article 142, was passing orders allowing withdrawal of applications after creditors’ applications had been admitted by NCLT or NCLAT.”

# 12. From Section 12A and the decision of the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ (Supra), it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the ‘I&B Code’ on the basis of which the ‘Corporate Insolvency Resolution Process’ was initiated.

# 13. In view of the aforesaid provisions of law, we hold that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’.

# 14. In the present case, the ‘Corporate Insolvency Resolution Process’ was initiated pursuant to an application under Section 7 filed by the ‘Andhra Bank’ (Appellant herein). The application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable.

# 15. In so far the assets of the ‘Corporate Debtor’ is concerned, if it is based on the proceeds of crime, it is always open to the ‘Enforcement Directorate’ to seize the assets of the ‘Corporate Debtor’ and act in accordance with the ‘Prevention of Money Laundering Act, 2002’ (for short, ‘the PMLA’).

# 16. However, it will not come in the way of the individual such as ‘Promoter’ or ‘Shareholder’ or ‘Director’, if he pays not from the proceeds of crime but in his individual capacity the amount from his account and not from the account/assets of the ‘Corporate Debtor’ and satisfies all the stakeholders, including the ‘Financial Creditors’ and the ‘Operational Creditors’. There is nothing on the record to suggest that the individual property of the ‘Promoter’ / ‘Shareholder’/ ‘Director’ who proposed to pay the amount has been subjected to restraint by the ‘Enforcement Directorate’. Therefore, even if the asset of the ‘Corporate Debtor’ is held to be proceeds of crime, the Adjudicating Authority cannot reject the prayer for withdrawal of application under Section 7, if the ‘Promoter’ / ‘Director’ or ‘Shareholder’ in their individual capacity satisfy the creditors.

# 17. For the reason aforesaid, while we hold that the order of ‘Liquidation’ was uncalled for, we set aside the impugned order dated 8th May, 2019 passed by the Adjudicating Authority and allow the Appellant (who filed the application of Section 7 – ‘Andhra Bank’) to withdraw the application.

# 18. In the result, the ‘Corporate Insolvency Resolution Process’ initiated against the ‘Corporate Debtor’ namely— ‘M/s. Sterling Biotech Ltd.’ stands set aside subject to the payment of the amount as payable by the ‘Promoters’/Shareholders to all the stakeholders/financial creditors and operational creditors in terms of Section 12A as approved with 90% voting share of the ‘Committee of Creditors’. However, setting aside the order of initiation of ‘Corporate Insolvency Resolution Process’ will not amount to interference with any of the order passed by the ‘Enforcement Directorate’ with regard to the assets of the ‘Corporate Debtor’ and the proceedings under ‘PMLA’ will continue against the ‘Corporate Debtor’ etc. in accordance with law.

# 19. In view of the fact that the impugned order dated 8th May, 2019 is set aside, all the observations made against Mr. Sundaresh Bhat, ‘Resolution Professional’ also stand expunged.

# 20. All these appeals stand disposed of with liberty to the ‘Enforcement Directorate’, the ‘Central Bureau of Investigation’, the ‘Ministry of Corporate Affairs’, ‘Securities and Exchange Board of India’ and the other Authorities to continue/take any action against the Company, ‘Promoter’/ ‘Shareholder’/ ‘Director’ under the existing laws and will continue irrespective of the settlement made by the individual ‘Promoter’/ ‘Shareholder’/ ‘Director’ with the creditors under Section 12A of the ‘I&B Code’.

# 21. So far as the fees and resolution cost of the ‘Resolution Professional’/ ‘Liquidator’ are concerned, the ‘Committee of Creditors’ will determine the same and will be paid by ‘Andhra Bank’ on behalf of the ‘Committee of Creditors’ and may adjust the same with other members. 

# 22. Till the ‘terms and conditions’ under Section 12A is complied, the ‘Resolution Professional’ will manage the company and ensure that the company remains a going concern and protect its assets.

All the appeals stand disposed of with aforesaid observations and directions.

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V. Navaneetha Krishnan vs. Central Bank of India & Anr. - Withdrawal Application under section 12A in Liquidation.

NCLAT(2018.08.09) in V. Navaneetha Krishnan vs. Central Bank of India & Anr. [Company Appeal (AT) (Insolvency) Nos. 288 & 289 of 2018] held that;

• Even during the liquidation period if any person, not barred under Section 29A, satisfy the demand of ‘Committee of Creditors’ then such person may move before the Adjudicating Authority by giving offer which may be considered by the ‘Committee of Creditors’, and if by 90% voting share of the ‘committee of creditors’, accept the offer and decide for withdrawal of the application under Section 7 of the I&B Code.............the order of liquidation passed by the Adjudicating Authority will not come in the way of Adjudicating Authority to pass appropriate order.

Excerpts of the order;

09.08.2018 The grievance of the appellant is that though a ‘resolution plan’ was submitted by him but without giving any opportunity to the appellant, the ‘Committee of Creditors’ decided to request the Adjudicating Authority for liquidation.

# 2. Mr. C. Ramasubramaniam, ‘Resolution Professional’/‘Liquidator’ submits that an information-memorandum was prepared but no ‘resolution plan’ was submitted within the time. The appellant submitted the ‘Resolution Plan’ on 178th day i.e. just two days prior to completion of 180 days. For the said reason, the application was moved before the Adjudicating Authority for ‘liquidation’ of the ‘corporate debtor’.

# 3. Mr. Rajiv S. Roy, learned counsel appearing on behalf of the Central bank of India submits that the ‘resolution plan’ was submitted through one of the Director but this fact has been disputed by the learned counsel for the appellant.

# 4. Taking into consideration the fact that the ‘resolution plan’ was submitted on 178th day and on the next day i.e. 179th day the ‘Committee of Creditors decided to go for liquidation as 180th day was to be completed and order under Section 31 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘I&B Code’) was required to be passed and in absence of any good reason for extension of time, we are not inclined to grant any relief.

# 5. However, in view of Section 12A even during the liquidation period if any person, not barred under Section 29A, satisfy the demand of ‘Committee of Creditors’ then such person may move before the Adjudicating Authority by giving offer which may be considered by the ‘Committee of Creditors’, and if by 90% voting share of the ‘committee of creditors’, accept the offer and decide for withdrawal of the application under Section 7 of the I&B Code, the observation as made above or the order of liquidation passed by the Adjudicating Authority will not come in the way of Adjudicating Authority to pass appropriate order.

 

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