The Supreme Court in the case of Brilliant Alloys Private Limited v. Mr. S. Rajagopal and Others (decided on December 14, 2018) held that the application for corporate insolvency resolution process can be withdrawn even after issuance of invitation for expression of interest.

FACTS
The National Company Law Tribunal, Chennai (“NCLT”) on September 28, 2017 allowed the petition filed by Brilliant Alloys Private Limited (“Corporate Debtor”) under Section 10 (Initiation of corporate insolvency resolution process by corporate applicant) of the Insolvency and Bankruptcy Code, 2016 (“Code”) and ordered commencement of the corporate insolvency resolution process (“CIRP”) and imposed moratorium as per the provisions of Section 14 (Moratorium) of the Code.

Since the settlement happened after the issue of invitation for expression of interest, an application under Section 12A of the Code (Withdrawal of application under Section 7, 8 and 10) would not have been allowed. Therefore, the resolution professional filed an application under Section 60(5)(a) of the Code (Adjudicating authority for corporate persons) which states that the NCLT shall have the jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person. The aforesaid application was to allow for the withdrawal of the CIRP and remove the corporate debtor from the clutches of the Code. The Division Bench of the NCLT passed an order dated November 11, 2018 dismissing the application stating that since Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) imposes conditions for withdrawal of application that it has to be filed before invitation for expression of interest, NCLT cannot pass an order allowing the withdrawal ignoring the conditional clause. Aggrieved by the order of the NCLT, the Corporate Debtor approached the Supreme Court under Article 136 (Special leave to appeal by the Supreme Court) of the Constitution of India and the following issue came up for determination:

ISSUE
Whether the application for CIRP can be withdrawn even after the issuance of invitation for expression of interest under the Code.

OBSERVATIONS OF THE SUPREME COURT
The Supreme Court observed that despite the Corporate Debtor, financial creditor and operational creditor agreeing to the same, the only reason the application to withdraw the CIRP failed was because Regulation 30A of the CIRP Regulations states that withdrawal cannot be permitted after issuance of invitation for expression of interest. Regulation 30A of the CIRP Regulations has been reproduced hereinbelow:

“30A. Withdrawal of application.

1. 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.
2. The application in sub-regulation (1) shall be accompanied by a bank guarantee towards estimated cost incurred for purposes of clauses (c) and (d) of regulation 31 till the date of application.
3. The committee shall consider the application made under sub-regulation (1) within seven days of its constitution or seven days of receipt of the application, whichever is later.
4. Where the application is approved by the committee with ninety percent voting share, the resolution professional shall submit the application under sub-regulation (1) to the Adjudicating Authority on behalf of the applicant, within three days of such approval.
5. The Adjudicating Authority may, by order, approve the application submitted under sub-regulation (4).”

The Supreme Court, however went on to state that Regulation 30A of the CIRP Regulations must be read with the main provisions of Section 12A of the Code, which contains no such stipulations. Section 12A of the Code is reproduced below.

“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.”

The Supreme Court observed that the stipulation under Regulation 30A of the CIRP Regulations can only be considered to be directory and would depend on the facts of each case.

DECISION OF THE SUPREME COURT
The Supreme Court set aside the NCLT’s order and allowed the settlement. Subsequently, the CIRP was annulled.

Vaish Associates Advocates View
This judgement keeps in mind the central theme of the Code, which is insolvency resolution of corporate persons and maximization of value of assets of all the stakeholders. In this instance, since the Corporate Debtor, operational creditors and financial creditors agreed to the withdrawal of the application for CIRP, the Supreme Court decided that it would be more beneficial to forgo the procedural aspects that had bound the NCLT from allowing the application for the withdrawal of the CIRP.

However, questions might be raised about the applicability of other procedural requirements of Regulation 30A of the CIRP Regulations on other cases of withdrawal, since the Supreme Court has clearly stated that the stipulations contained therein would depend upon facts of each case.

For more information please write to Mr. Bomi Daruwala at [email protected]

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