ISGEC Heavy Engineering Limited vs Cane Agro Energy (India) Limited

,,,,

This is an Application filed by the Interim Resolution Professional (IRP) under section 12A of the Insolvency and Bankruptcy Code, 2016 (the",,,,

Code) read with Regulation 30A (3) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons),,,,

Regulations, 2016 (the Regulations) for withdrawal of the Company Petition.",,,,

This matter was referred to me as there was a difference of opinion amongst the Members vide order dated 15.12.2020. The issues framed for,,,,

reference are as follows:,,,,

i. Whether the IRP can withhold an Application to the Adjudicating Authority after the Application in Form FA is submitted by the Creditor for,,,,

withdrawal of the Company Petition?,,,,

ii. Whether the IRP is prohibited from making an Application under Section 12A of the Insolvency and Bankruptcy Code read with Regulation 30A of,,,,

the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, after the issue of the public advertisement under Section 13 of the",,,,

Code read with Regulation 6 of the Regulations in Form A and before the last date for submission of the claims?,,,,

iii. If such an Application is made, would it amount to misconduct on the part of the IRP?",,,,

iv. Whether Adjudicating Authority has power to direct settlement of outstanding claims of other creditors who are not before it nornotices have been,,,,

issued to them?,,,,

The admission of CIRP against the Corporate Debtor was passed on 10.06.2020. The Operational Creditor and Corporate Debtor entered into a,,,,

settlement agreement dated 23.06.2020. The Operational Creditor was paid an amount of Rs. 21 lakhs towards full and final settlement of operational,,,,

Creditors due as per the settlement agreement. The copy of the settlement agreement and Form FA is extracted below:,,,,

4.,"Jankalyan Nagari

SahkariPatsanstha",FORM C,7.66,27.06.2020

5.,"Sangali District Central Coop

Bank Ltd.",FORM D,191.24,27.06.2020

6.,Bank of India,FORM C,80.82,29.06.2020

7.,"Krantiagrani Dr. G. D.

BapuLad Sahakari Karkhana

Ltd",FORM B,0.65,26.06.2020

8.,Bank of India,FORM F,157.62,29.06.2020

,"Total Claims received as on 6th July

2020",,437.99,

Sl.

No.",CP Nos.,"Section under which filed and

name of the Applicant therein",Status,

1.,"IB 2415 (MB)

2018","THE KARAD JANATA

SAHAKARI BANK

LIMITED (Section 7)","Application withdrawn by Applicants as there was no

default and the Hon’ble Bench was inclined to

dismiss the application.",

2.,"IB 915 (MB)

2019","SHREE BALAJI

SUGAR CO (Section 9)","Matter amicably settled before admission. Out of the

total dues 1/3rdwas to be paid before 12th March, 2020.

Hence, Rs. 2 crores out of Rs. 5.92 Cr (including

interest) was paid on that date.

Remaining 2/3rd was to be paid on or before 31st Mar

2020. This amount is pending due to the lockdown.

Whereas the CD is in continuous touch with the

Applicant therein and the

payments schedules are being worked out afresh.",

3.,"IB 3010 (MB)

2019","ISGEC HEAVY

ENGINEERING

LIMITED (Section 9)",The Present Application,

Section 12A of the Code:,,,,

“12A. Withdrawal of application admitted under section 7, 9 or 10The Adjudicating Authority may allow the withdrawal ofapplication",,,,

admitted under section 7 or section 9 or section 10, onan application made by the applicant with the approval of ninetyper cent. voting",,,,

share of the committee of creditors, in suchmanner as may be specified.â€​",,,,

Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016:",,,,

“30 A. Withdrawal of application:,,,,

(1) An application for withdrawal under section 12A maybe made to the Adjudicating Authority â€",,,,

(a) before the constitution of the committee, by theapplicant through the interim resolution professional;",,,,

(b) after the constitution of the committee, by the applicantthrough the interim resolution professional or the resolutionprofessional, as the",,,,

case may be:,,,,

Provided that where the application is made under clause (b) afterthe issue of invitation for expression of interest under regulation36A, the",,,,

applicant shall state the reasons justifying withdrawalafter issue of such invitation.,,,,

(2) The application under sub-regulation (1) shall be made in FormFA of the Schedule accompanied by a bank guarantee-,,,,

(a) towards estimated expenses incurred on or by theinterim resolution professional for purposes of regulation33, till the date of filing of",,,,

the application under clause (a)of sub regulation (1); or(b) towards estimated expenses incurred for purposes ofclauses (aa), (ab), (c) and",,,,

(d) of regulation 31, till the date offiling 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 Authorityon behalf of the applicant, within three days of its receipt.",,,,

The code mandates filing of Form-FA within 3 days to the Adjudicating Authority and the CoC is yet to be constituted in the present case. The,,,,

series of events post commencement of CIRP are as follows:,,,,

“iii. In present case:,,,,

i. Insolvency commencement date was 10 June 2020,,,,

ii. Order was received on 15 June 2020;,,,,

iii. Public announcement calling for claims from creditorswas made on 16 June 2020;,,,,

iv. Settlement agreement alongwith Form FA was received bythe IRP from the Original Petitioner (Operational Creditor)on 23 June 2020 in,,,,

view of complete settlement andpayment of its dues;,,,,

v. Regulation 30A(3) only give 3 days to file the applicationunder section 12A of the Code and the said applicationwas filed on 26 June,,,,

2020;,,,,

vi. This IA i.e. IA 1025 of 2020 was then heard and “reservedfor ordersâ€​ on 06 July 2020. Copy of the said order ishereto annexed and,,,,

marked as “Annexure 1â€​.,,,,

The question for consideration arises whether the IRP is duty bound to file the Form-FA before the Adjudicating Authority within 3 days of,,,,

receiving the settlement agreement and whether the adjudicated authority can allow the withdrawal of CIRP in view of pending claims of other,,,,

creditorsand whether IRP has followed the letter and spirit of law as enunciated under Section 12A of the Code read with Regulation 30A (3) of the,,,,

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.",,,,

It is relevant to refer to the decision of Hon’ble Supreme Court in the case of Hon'ble Supreme Court in the case of Swiss Ribbons Pvt Ltd and,,,,

Anrs v/s Union of India [WP (Civil) 99 of 2018] wherein it was stated as follows:,,,,

“52. 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 yet 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.â€​,,,,

The IRP also relied upon the decision of Hon’ble NCLAT in the case of K C Sanjeev v/s. Mr. Easwara Pillai Kesavan Nair (IRP) and Ors,,,,

[Company Appeal (AT) (Insolvency) No. 1427 of 2020] dated 28February 2020 wherein it has been held as under:,,,,

“4. Considering the Provisions of Section 12 A of IBC and Regulation 30 A of the Insolvency and Bankruptcy Board of India (Insolvency,,,,

Resolution Process for Corporate Persons) Regulations, 2016, it is clear that the IRP is duty bound to place the Application for withdrawal",,,,

within three days of its receipt. The grievance of the Appellant is that in spite of such provision such action was not taken. The Appellant is,,,,

raising various grievances against the IRP. We have been dealing with these types of matters relating to withdrawal and in this regard,,,,

various parties do appear to have been facing problems. The date of filing of application for withdrawal to Adjudicating Authority is,,,,

material considering Judgment in the matter of Swiss Ribbons Pvt. Ltd. vs. Union of India 2019 SCC Online SC 73 ...â€​,,,,

It is also important to refer to the judgment of Hon’ble NCLAT in the case of Gouri Prasad Goenka v/s. Mr. Surendra Kumar Agarwal & Anr,,,,

[Company Appeal (AT) (Insolvency) No. 105 of 2020] dated 30 January 2020 wherein it has been held as under:,,,,

“2. According to learned counsel for the Appellant, the matter was immediately settled with the ‘Operational Creditor ’ much prior",,,,

to the constitution of the ‘Committee of Creditors’ and more than the amount claimed has been paid by two Demand Drafts handed,,,,

over to the Advocate on record of the ‘Operational Creditor’ on 9th January, 2020.",,,,

The ‘Operational Creditor’ also moved an Application for withdrawal under Rule 11 of the NCLT Rules, 2016 on the same date",,,,

i.e. on 9th January, 2020, but no order was passed and it was adjourned for 3rd March, 2020. The Adjudicating Authority directed the",,,,

‘Interim Resolution Professional’ to constitute the ‘Committee of Creditors’ within a week. It is submitted that such direction,,,,

itself made application under Rule 11 infructuous so that the parties cannot settle which is against the decision of the Hon’ble Supreme,,,,

Court in“Swiss Ribbons Pvt. Ltd. &Anr. vs. Union of India & Ors.─ Writ Petition (Civil) No. 99 of 2018â€​.,,,,

Conclusion:,,,,

i. It is an undisputed fact that the Corporate Debtor settled the dues of the original Operational Creditor soon after initiationof admission of CIRP on,,,,

23.10.219 against Corporate Debtor. The IRP upon receipt of Form FA immediately within 3 days filed an application to withdraw the CIRP against,,,,

the Corporate Debtor.,,,,

ii. It is a trite law that Section 12A of the Code read with Regulation 30A (3) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution,,,,

Process for Corporate Persons) Regulations, 2016, mandates the IRP that upon the receipt of Form FA, has to file an application for withdrawal with",,,,

adjudicating authority within 3 days of receipt of the same. The date of filing of application for withdrawal to Adjudicating Authority is material,,,,

considering Judgment in the matter of Swiss Ribbons Pvt. Ltd. vs. Union of India 2019 SCC Online SC 73 in Para 79 and 80, Hon’ble Supreme",,,,

Court observed as under:,,,,

“79. It is clear that once the Code gets triggered by admission ofa creditor’s petition under Sections 7 to 9, the proceedingthat is",,,,

before the Adjudicating Authority, being a collectiveproceeding, is a proceeding in rem. Being a proceeding inrem, it is necessary that the",,,,

body which is to oversee theresolution process must be consulted before any individualcorporate debtor is allowed to settle its claim. A,,,,

questionarises as to what is to happen before a committee of creditorsis constituted (as per the timelines that are specified, acommittee of",,,,

creditors can be appointed at any time within30 days from the date of appointment of the interimresolution professional). We make it clear,,,,

that at any stagewhere the committee of creditors is not yet constituted, aparty can approach the NCLT directly, which Tribunal may,in",,,,

exercise of its inherent powers under Rule 11 of the NCLTRules, 2016 allow or disallow an application for withdrawalor settlement. This",,,,

will be decided after hearing all theconcerned parties and considering all relevant factors on thefacts of each case.,,,,

The main thrust against the provision of Section 12 A is thefact that ninety per cent of the committee of creditors has toallow withdrawal.,,,,

This high threshold has been explained inthe ILC Report as all financial creditors have to put theirheads together to allow such withdrawal,,,,

as, ordinarily, anomnibus settlement involving all creditors ought, ideally, tobe entered into. This explains why ninety per cent, which",,,,

issubstantially all the financial creditors, have to grant theirapproval to an individual withdrawal or settlement. In anycase, the figure of",,,,

ninety per cent, in the absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has",,,,

been explained by the Report (Supra). Also, it is clear, that under Section 60 of theCode, the committee of creditors do not have the last",,,,

wordon the subject. If the committee of creditors arbitrarily rejectsa just settlement and/or withdrawal claim, the NCLT, and thereafter, the",,,,

NCLAT can always set aside such decision under Section 60 of the Code. For all these reasons, we areof the view that Section 12 A also",,,,

passes constitutional muster.â€​,,,,

(Emphasis supplied) Para 3,,,,

iii. It is clear that once a code gets triggered by admission of CIRP against the Corporate Debtor, 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 his claims. This being a collective action is a,,,,

proceeding in rem. The moot question now remains to be answered is whether the Adjudicating Authority can allow a withdrawal of CIRP against,,,,

Corporate Debtor before constitution of COC. The Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. vs. Union of Indiahas 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.,,,,

iv. In my view, it is irrelevant whether the last date for receiving claims is still open or lapsed as per the public notice, upon receiving Form FA, it is",,,,

bounded duty of IRP to file the application for withdrawal within 3 days under Section 12A of the Code read with Regulation 30A (3) of the,,,,

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It is an undisputed fact that the",,,,

IRP has filed the application within 3 days and has acted in letter and spirit of law.,,,,

v. This Adjudicating Authority is not vested with any powers under the Insolvency and Bankruptcy Code todirect settlement of parties while allowing,,,,

withdrawal of CIRP against Corporate Debtor. Hence, I am not agreeing with the observation of the Judicial Member. Further, I do not find any",,,,

misconduct of the IRP in filing application for withdrawal, within 3 days of receiving Form FA. The Cost of Rs. 10 lakhs on the Corporate Debtor is",,,,

set aside.,,,,

vi. I agree with the decision of Hon’ble Judicial Member and allow withdrawal of CP No 3010 of 2019 as a result of which the Corporate Debtor,,,,

is released from the rigour of CIRP and the board of directors will be allowed to function independently with immediate effect.,,,,

vii. IA is allowed and disposed off with above directions.,,,,