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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