No Obstacle to Withdrawing CIRP Claim Admitted Before Creditors’ Committee Established: Supreme Court

The Supreme Court observed that there is nothing to prevent the withdrawal of a request for CIRP admitted before the constitution of the creditors’ committee.

The settlement cannot be suppressed before the constitution of the creditors’ commission in anticipation of claims against the debtor company from third parties, the bench Judges Indira Banerjee and JK Maheshwari said.

The court did so while dismissing the appeal against the NCLAT’s order which provided the parties with an opportunity to settle their disputes before the contracting authority (NCLT) under IBC Section 12A read with the Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules).

The bench noted that Section 12A of the IBC allows the contracting authority to authorize the withdrawal of an application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% of the voting shares of the Creditors’ Committee in such manner as may be specified. It said;

“IBC Section 12A clearly permits the withdrawal of an application under IBC Section 7 which has been admitted on an application made by the applicant. The issue of creditors’ committee approval by the required percentage of votes can only arise after the Creditors’ Committee is constituted. Prior to the constitution of the Creditors’ Committee, there is, in our opinion, no obstacle to the plaintiff’s withdrawal of a request admitted under section 7 of the IBC.”

The court further noted that Rule 11 of the NCLT Rules permits the NCLT to make orders for the purposes of justice, including an order permitting a CIRP claimant to withdraw its claim and permitting a corporation to conduct its activities with ease, without any obstacles. . While denying the appeal, he said:

“Given the investments made by the Debtor Company and the number of people dependent on the Debtor Company for their survival and subsistence, there is no reason why the applicant for the CIRP should not be authorized to withdraw his application once settlement may not be stifled until the creditors’ commission is constituted in anticipation of claims against the debtor company from third parties The withdrawal of a CIRP application by the plaintiff would not prevent any further financial creditor to initiate proceedings under the IBC The urgency of meeting deadlines for the completion of the resolution process is not a reason to stifle settlement.

Case details

Ashok G. Rajani v Beacon Trusteeship Ltd. | 2022 LiveLaw (SC) 790 | CA 4911 FROM 2021 | September 22, 2022 | Judges Indira Banerjee and JK Maheshwari

Summaries

Insolvency and Bankruptcy Code, 2016; Section 12A – National Company Law Tribunal Rules, 2016; Rule 11 – Section 12A clearly permits the withdrawal of a Section 7 IBC claim that has been admitted – The question of approval of the Creditors’ Committee by the required percentage of votes can only arise after the constitution of the creditors’ committee – Before the creditors’ committee is constituted, nothing prevents the plaintiff from withdrawing an application admitted under article 7 CIB – The transaction cannot be suppressed before the constitution of the creditors’ committee in anticipation of claims against the debtor company from third parties. The withdrawal of a CIRP claim by the claimant would not preclude any other financial creditor from pursuing IBC proceedings. The urgency of meeting deadlines for the completion of the resolution process is no reason to stifle settlement – ​​Rule 11 of the NCLT Rules allows the NCLT to make orders for the purposes of justice, including an order allowing a CIRP applicant to withdraw their application and allow a legal person to carry on its activities with ease, without hindrance. (Paragraphs 23-30)

Click here to read/download the judgment