Endless Services Private Limited vs INDO-Gulf Diagnostics And Research Center Private Limited

Santanu Kumar Mohapatra, Member (T)

This is an application filed by the petitioner Financial Creditor, M/s. Endless Services Private Limited under Section 12A of Insolvency and Bankruptcy Code, 2016 (hereinafter referred as the "Code") to permit the Petitioner to withdraw the application bearing Company Petition No. (IB)-1014 (PB) /2019 in view of the settlement with the management of the Corporate debtor before Constitution of Committee of Creditors.

An application for initiation of corporate insolvency resolution process or on admission continuance of insolvency resolution process under the provisions of the Code can be withdrawn, on settlement arrived at between the parties at any of the following three stages.

a) On settlement before the admission of the application under Section 7, 9 or 10 of the Code in terms of Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

b) On settlement with the petitioner after admission but before constitution of CoC under inherent power under rule 11 of NCLT Rules (in view of the decision in Swiss Ribbons Case).

c) Withdrawal in terms of Section 12A of the Code.

In order to appreciate the matter in its proper perspective the relevant date wise development of the present case as per the affidavit of IRP is furnished below:

a. 31.07.2019 -Application u/s 7 admitted. IRP appointed.

b. 04.08.2019 - Claims invited through paper Publication.

c. 14.08.2019- last date for submission of claims.

d. 20.08.2019- Settlement deed between corporate debtor and petitioner financial creditor,

e. 21.08.2019 - Constitution of CoC.

Admittedly in the present case the compromise was arrived at between the corporate debtor and the petitioner financial creditor before the Constitution of Committee of Creditors. Accordingly, inherent power of the Tribunal can be used in allowing the withdrawal in appropriate cases as per the precedent laid down by HonTfe Supreme Court in Swiss Ribons Case.

In the case of 'Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. - Writ Petition (Civil) No. 99 of 2018 (2019 SCC OnLine SC 73)', the Hon'ble Supreme Court has observed as follows"

"79. It is clear that once the Code gets triggered by admission of a creditor's petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not uet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case."

(emphasis given)

It is accordingly seen that once the Code is triggered after admission of the application the proceedings becomes a collective proceeding and proceeding in rem. Therefore, inherent power is to be used by the Adjudicating Authority after hearing the parties and considering all relevant factors of each case.

In the present case the application has been wrongly filed under Section 12A of the Code as meetings of CoC has not yet commenced and therefore applicability of Section 12A does not arise.

On merit also it is seen that IRP has received two claims pursuant to the public advertisement which are as under:

S. No

Name of the Creditor

Claim submitted (Rs.)

Claim Admitted (Rs.)

Proportion of Financial Debt%

1

HDB Financial Services Limited

7,10,54,662

2,74,72,707

85.08

2

Endless Services Private Limited

1,48,41,655

48,18,762

14.92

It is seen that petitioner has 14.92%, whereas the other financial creditor has 85.08% of the financial debt of the corporate debtor. Therefore, the present application cannot be allowed at the back of the financial creditor who holds 85.08% of the financial debt, as it will cause prejudice to such financial creditor. That apart once the application is allowed it may amount to preferential payment of 100% debt of the petitioner, whereas the other financial creditor may be exposed to substantial haircut.

In the facts in our considered opinion this is not a fit case to use inherent power at this stage of the proceeding and at the back of the other financial creditor holding 85.08% of the financial debt.

The application is accordingly dismissed.

Let copy of the order be served to the parties.