Hari Babu Thota Interim Resolution Professional - It is observed that as per the provisions of Section 12A and Regulation 30A of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the mandatory requirement for filing withdrawal, is to obtain 90% approval from the Committee of Creditors. Since the Corporate Debtor has only one Financial Creditor, the withdrawal has been approved by the sole Financial Creditor, the role of the RP simply had become limited to forwarding the withdrawal application to the adjudicating authority and cannot judge over the validity of such withdrawal.

 NCLT Bengaluru (2024.03.28) in Hari Babu Thota Interim Resolution Professional [I.A. No.559/2023 & I.A NO. 655/2023 C.P. (IB) No.01/BB/2019] held that; 

• Section 21 of the Code, only deals with the constitution of the CoC. The Code contemplates meeting of CoC for the purpose of taking all decisions with regard to insolvency resolution of the corporate debtor.

• The committee in the IBC is to form a consensus of Financial Creditors. However, in the instant case since the Corporate Debtor has only one Financial Creditor and the CoC has been constituted with a Sole Financial Creditor, the same is “Valid” and cannot be termed as to defeat the purpose of formation of “Committee.

• On a careful consideration of the respective contentions advanced on either side, this Tribunal is of the considered view that the ‘Resolution Professional’ has no ‘Adjudicatory Power’ under the I & B Code, 2016 and further that when once the ‘Committee of Creditors’ is/was formed, the ‘Resolution Professional’ cannot change the ‘Committee of Creditors’

• It is observed that as per the provisions of Section 12A and Regulation 30A of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the mandatory requirement for filing withdrawal, is to obtain 90% approval from the Committee of Creditors. Since the Corporate Debtor has only one Financial Creditor, the withdrawal has been approved by the sole Financial Creditor, the role of the RP simply had become limited to forwarding the withdrawal application to the adjudicating authority and cannot judge over the validity of such withdrawal.

• Also, previously in various of judgements it’s already established that the Adjudicating Authority cannot meddle with the ‘Commercial Wisdom’ of the Committee of Creditors, when the Creditors have positively established and prayed for withdrawal of the CIRP.

• It could thus be seen that one of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.

Excerpts of the order;

# 1. The present application in I.A No. 559 of 2023 in CP(IB) No. 01/BB/2019 was filed on 01/08/2023 by the Resolution Professional Shri Hari Babu Thota under Section 12A of the I&B Code inter alia praying for withdrawal of CIRP in question, for cessation of effects of moratorium imposed on the Corporate debtor. 

# 2. Further I.A No. 655/2023 was filed by the Employees/ Operational Creditors interalia seeking to set aside the 4th COC held on 28/07/2023 and to issue direction to the RP to reconstitute COC as per the Regulation 16 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.

# 3. IA NO. 559/2023

i. Initially, CP(IB) No. 01/2019 was filed by Smt Jayanthi Ravi, U/s 7 of the IBC, 2016, R/w Rule 6 of I&B (AAA) Rules, 2016. After considering the matter, the Adjudicating Authority, admitted the case by an order dated 23/02/2022 by initiating CIRP, appoint Shri Hari Babu Tota as the IRP, imposing moratorium etc.

ii. Accordingly, the Interim Resolution Professional, caused Public Announcement dated 11/03/2022, intimating the order of Adjudicating Authority, calling upon the Creditors of Chemizol Additivies Private Limited to submit their claims.

iii. The claims received have been duly verified by the IRP/RP, by admitting the claim of the Financial Creditor to the extent of Rs 5,67,87,500/-. Employees and Workmen claims of 5,66,34,083/. Government dues of Rs 65,54,393/- and Amounts of various Operational Creditor to the extent of Rs 23,36,252/-. Hence the Committee of Creditors (COC) was constituted with sole Financial Creditor consisting of Mrs Jayanthi G Ravi. However it is noted that suspended directors have disputed the amount of claim of  the employees and workmen stating that the amount of claim is different from the dues as per the Provisional Financial Statements as on 23rd Feb 2023.

iv. Writ Petition was filed by Ms Sudha Reddy Punuru and Shri Rajappa Kantharaja, Directors of suspended Board of the Corporate Debtor, before the Hon’ble High Court Karnataka, Bengaluru Bench vide W.P No. 9600 of 2022. Hon’ble High Court imposed an interim stay over the order of this Bench dated 23/02/2022 and lifted the stay imposed vide its Order dated 30/06/2023. Further, the undersigned resumed the CIRP Process with effect from 30/06/2023.

v. Further, the Applicant (IRP) received signed application for withdrawal of CIRP in Form FA along with a copy of the Settlement Agreement dated 19/07/2023, entered between M/s K. N Biosciences (India) Private Limited and Mrs Jayanthi Ravi, and a Bank Guarantee towards the CIRP Costs of Rs 33,00,000/- on 27/07/2023. The entire liability of Mrs Jayanthi G Ravi to the extent of Rs 5,67,00,000/- was settled by K.N Biosciences (India) Private Limited, shareholder of the Corporate Debtor, on behalf of the Corporate Debtor.

vi. On request of K. N Biosciences (India) Private Limited, the RP facilitated for deposit of an amount of Rs 6,00,00,000/- (Rupees Six Crore) in CIRP Bank Account vide DD Nos. 688209 and 688210 drawn on Punjab National Bank, in favour of ‘Chemizol Additives Pvt Ltd in CIRP’.

vii. CoC in its 4th meeting dated 28/07/2023, has approved for withdrawal of Application under Section 12A r/w Regulation 30A of IBBI, admitted under Section 7, by the Financial Creditor. Accordingly Form FA dated 26/07/2023 has been filed by the RP vide Diary No.1192 dated 01/08/2023.

# 4. The Interim Resolution Professional vide Diary No. 5349 dated 18/10/2023, has submitted Citations, wherein the applicant has relied on the decisions of Hon’ble Supreme Court in Vallal Rck v. M/s Siva Industries and Holdings Limited and Ors, [(2022) ibclaw.in 63 SC] and Abhishek Singh v. Huhtamaki Ppl Ltd, [(2023) ibclaw.in 37 SC] and the order of the Hon’ble NCLAT in Anuj Tejpal v Rakesh Yavad and anr [CA(AT)(Ins) No. 298/202]. Further, written Submissions vide Diary No 330 dated 16/01/2024 was filed, wherein it is submitted that the Employees/Operational Creditors of the Corporate Debtor are apprehensive of the outcome before this Bench, approached Hon’ble High of Karnataka Bengaluru in W.P 23735/2023 praying that the Hon’ble High Court to issue Writ quashing the order likely to be passed by NCLT, Bengaluru in I.A 559/2023. However, the Hon’ble High Court of Karnataka on 17/11/2023 has dismissed the Writ Petition stating, “the company has been revived and petitioners herein are in no way connected with the same.” The Order of the Hon’ble High of Karnataka was submitted vide Memo dated 12/01/2024 in Diary No. 295.

# 5. I.A No. 655/2023

In this application, it has been submitted by the applicants as under: 

i. The Applicants in I.A 655/2023 are employees and Operational Creditors who have filed their respective Proofs of Claim under Regulation 17 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and whose claims have been admitted. The Applicants collectively are Operational Creditors having aggregate dues of more than 10% of the debt of the Corporate Debtor.

ii. On 31/07/2023 the Applicants received an email from the IRP, that Ms Jayanthi G Ravi/Financial Creditor, the Petitioner, has furnished an application in Form FA on 27/07/2023 withdrawal of CIRP of the Company, along with a settlement agreement dated 19/07/2023 between KN Biosciences (India) Private Limited and the Financial Creditor.

iii. The Applicants immediately addressed a notice to the Respondent herein contending that, upon settlement with the Petitioner creditor, Mrs Jayanthi Ravi on 19/07/2023, the corporate debtor has no financial debt as defined under IBC. Resultantly, in terms of Regulation 16 IRPCP Regulations, where the corporate debtor has no financial debt, the CoC shall consist of 18 of the largest operational creditors by value or all of the operational creditors and one representative elected by all workmen.

iv. The Applicants further contends that the CoC, not being reconstituted as on 19/07/2023, thus Coc meeting held on 28/07/2023, was not a validly constituted CoC given that the Petitioner Creditor, was not even a financial creditor as on that date. Hence, the invalidly and illegally constituted CoC did not have any right to consider and approve withdrawals of the CIRP on the basis of the sole vote of such financial creditor.

v. The notice dated 07/08/2023 was served on the Respondent RP on the same day via email. However, the Respondent RP issued an untenable reply dated 09/08/2023 denying all allegations made under the notice and further contending that CIRP was carried out as per the provisions of the IBC. The Respondent RP has further contended that an application for withdrawal of the CIRP, filed under Section 12 A of the IBC and Regulation 30A of the Regulations, has been received from the Petitioner on 27/07/2023, which application was placed before CoC on 28/07/2023, and which came to be approved by the COC, whereby the Respondent RP was authorised to file the application before this Hon’ble Tribunal. In light of the above, the Respondent RP has contended that reconstitution of the CoC at this stage does not arise. 

vi. In the present case, as on 28/07/2023, the Financial has no interest and was not a creditor or stakeholder in the company and was hence not legally authorised to have a seat on the CoC. The CoC ought to always comprise of only the creditors to the corporate debtors, and cannot, at any point in time, comprise of persons having no interest in the corporate debtor. 

vii. The IBC Code, do not contemplate a situation where the CoC comprises of a single creditor. This goes against the very concept and spirit of a “Committee” and impermissible in law. It is submitted that a Committee can never comprise of a single individual or entity, and must comprise of more than one person. It is submitted that, the moment the Committee of Creditors would potentially comprise of only one member, the RP is mandated to resort to the provision of Regulation 16 under the IRPCP Regulations and constitute the CoC accordingly. The RP has no discretion to constitute the CoC with only one member.

viii. The Respondent RP has failed to convene the 4th meeting of the purported CoC, where the resolution was allegedly passed permitting withdrawal of the petition, in accordance with law. Not only was the meeting convened without necessary members of the CoC but was also convened without providing adequate notice of 5 days to the members. Hence the 4th CoC meeting held on 28/07/2023 is void and contrary to law as the said meeting was convened without giving notice of such meeting to the employees as contemplated under Section 24 of the IBC.

# 6. The Respondent (RP) has filed written submissions vide Diary No 5331, dated 17/10/2023, and contended as under:

i. The sole Financial Creditor has mandatorily prescribed in settlement agreement dated 19/07/2023 that she would require payment of her dues prior to consenting the withdrawal and hence the same cannot be construed as a case which would require reconstitution of the Committee by ‘extinguishing’ the claim of Financial Creditor. Such settlement was made as a pre-requisite satisfying regulation 30A CIRP and the same does not require reconstitution of CoC.

ii. In regard to Regulation 16 of the IBBI (CIRP) Regulations, 2016, it is stated that Regulation only prescribes instances for formation of COC with operational Creditor, when the Corporate Debtor has no claim of  Financial Creditor. In the present case as there is existence of the Financial Creditor, invocation of Regulation 16 is does not arise. That as per Section 21(2) of the Code only unrelated Financial Creditors of CD can form CoC, and that the Code does not validate that the settlement done for the purpose of withdrawal of CIRP shall result in reconstitution of CoC.

iii. Further, that a sole member cannot constitute the Committee of Creditors is absurd, as the Committee of Creditors only requires to consist of unrelated Financial Creditors of the Corporate Debtors as per Section 21(2) of the Code. In the present matter, only Ms Jayanthi

G Ravi was eligible to be included in CoC. Hence the CoC was constituted with sole unrelated financial creditor.

iv. The employees of the Corporate Debtor filed a Writ Petition 23735/2023 before Hon’ble High Court of Karnataka, Bengaluru Bench praying that Hon’ble Court to issue a Writ or pass suitable order or provide directions quashing the order dated 19/10/2023 likely to be passed by NCLT, Bengaluru Bench in I.A 559/2023. The Hon’ble High Court of Karnataka in this regard, having understood the Corporate Debtor is being revived passed orders that the employees being no way connected with revival of Corporate Debtor dismissed the Writ Petition 23735/2023 and accordingly disposed the matter.

# 7. The Applicants have filed written submission vide Diary No. 5475 dated 30/10/2023, wherein the applicant have contested the reliance on the judgement of Hon’ble Supreme Court in Siva Industries & Abhishek Singh (supra) stating that the case pertains only to the commercial wisdom of the CoC. However in the present case RP ought have followed Regulation 16 of CIRP and reconstituted CoC and that the judgments do not address the issue that the erstwhile Financial Creditors cannot be a part of CoC. Further the Applicant have relied the decisions of Hon’ble NCLAT in Dauphin Cables v Praveen Bansal (RP) CA(AT)(Ins)No. 634-636/2023, and Bhushan Shrigapure and ors v BK Mishra and others CA(AT)(Ins)No.1504/2022.

# 8. We have heard the Learned Counsels for both the parties and perused the matter in record.

# 9. The word “Committee” has not been defined either in the Part 1 or Part 2 of the Code which deals with Insolvency Resolution and Liquidation for Corporate Persons. With regard to constitution of Committee of Creditors, provisions have been made in Section 21(2) of the Code which provides that Committee of Creditors that shall comprise of all Financial Creditors (unrelated) of the Corporate Debtor. Section 21 of the Code, only deals with the constitution of the CoC. The Code contemplates meeting of CoC for the purpose of taking all decisions with regard to insolvency resolution of the corporate debtor. The committee in the IBC is to form a consensus of Financial Creditors. However, in the instant case since the Corporate Debtor has only one Financial Creditor and the CoC has been constituted with a Sole Financial Creditor, the same is “Valid” and cannot be termed as to defeat the purpose of formation of “Committee.”

# 10. The main contention of the Applicants is that the Petitioner – Financial Creditor was ineligible to conduct and vote in the CoC held on 28/07/2023, since the debt owed to the Financial Creditor was already settled and she did not fit the criteria of being a ‘Financial Creditor’ and that the IRP in the present matter ought to have reconstituted the said CoC with the Applicants/employees as the Creditors, as per Regulation 16 of the CIRP rules. In this regard this Tribunal relies on the judgement of Hon’ble NCLAT in the matter of Mr. K.N Rajkumar v V Nagarajan, (2021) ibclaw.in 223 NCLAT, which was further affirmed by Hon’ble SC in Mr. K.N Rajkumar v V Nagarajan [(2021) ibclaw.in 150 SC] wherein it was clearly held that,

• “On a careful consideration of the respective contentions advanced on either side, this Tribunal is of the considered view that the ‘Resolution Professional’ has no ‘Adjudicatory Power’ under the I & B Code, 2016 and further that when once the ‘Committee of Creditors’ is/was formed, the ‘Resolution Professional’ cannot change the ‘Committee of Creditors’. Suffice it for this Tribunal to make a pertinent mention that the Resolution Professional/1st Respondent cannot constitute a ‘Committee of Creditors’ afresh, in negation of the earlier constituted ‘Committee of Creditors”

Further, it is observed that as per the provisions of Section 12A and Regulation 30A of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the mandatory requirement for filing withdrawal, is to obtain 90% approval from the Committee of Creditors. Since the Corporate Debtor has only one Financial Creditor, the withdrawal has been approved by the sole Financial Creditor, the role of the RP simply had become limited to forwarding the withdrawal application to the adjudicating authority and cannot judge over the validity of such withdrawal. Hence, this Tribunal is of the Opinion that the contention of reconstitution of CoC is not a matter to be judged by the Resolution Professional.

# 11. Regulation 16 of the CIRP Regulation, are to be implemented when the Corporate Debtor has no Financial Creditors and only Operational Creditors and cannot be used as a loophole to re-constitute the Committee of Creditors. In the present case, the Corporate Debtor has a sole Financial Creditor, and the RP has constituted CoC. Hence invocation of Regulation 16 of CIRP is not necessary.

# 12. As per Section 12A of the Code an application seeking ‘withdrawal’ can be allowed only if the 90 % of the Creditors voted for the same. Also, previously in various of judgements it’s already established that the Adjudicating Authority cannot meddle with the ‘Commercial Wisdom’ of the Committee of Creditors, when the Creditors have positively established and prayed for withdrawal of the CIRP. In present case, since Committee consists of sole financial Creditor and such owing to the settlement, the Financial Creditor has passed the resolution for withdrawal in the 4th CoC and accordingly, the RP has filed form FA and seeking withdrawal under section 12A of the Act, we do not find it necessary to meddle with the settlement arrived by the Corporate Debtor and the Financial Creditor.

# 13. Reliance is placed on the judgment of Hon’ble Supreme Court Mr. K.N Rajkumar (supra) wherein it was stated that, “16. It could thus be seen that one of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.” In light of the same this Tribunal is inclined to provide keep the Corporate Debtor has a going concern.

# 14. It is reiterated that the debt claims of the Applicants/employees is not affected in any manner and they are at liberty to raise their own independent claims in appropriate proceedings which would be dealt in accordance of law. Accordingly I.A 655/2023 is hereby dismissed.

# 15. Since the conditions for withdrawal for CIRP u/s 12A of the Code r/w Regulation 30A of the IBBI (IRP for Corporate Persons) Regulations, 2016 and Rule 11 of the NCLT Rules, 2016 have been satisfied, this Adjudicating Authority has no objection for withdrawal of this Petition. Therefore, the instant Applicant is hereby allowed. Therefore,

# 16. Consequently, the Corporate Debtor is hereby released from the rigours of CIRP and the IRP so appointed, is directed to handover the charge of the assets and affairs of the Corporate Debtor back to the Suspended Members of the Board of Directors of Corporate Debtor. Subsequently, IRP is discharged from his duties of the Corporate Debtor, and moratorium shall be ceased to have effect, from the date of this order.

# 17. Accordingly, I.A.No 559 of 2023 is hereby allowed and consequently, the Petition bearing C.P.(IB)No.01/BB/2019 stands closed along with pending I.As, if any.

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M/s Vijay Trading Co & Ors. Vs. Ms Reshma Mittal, & Ors. - There appears to be no room for any other interpretation to Section 12A to include in its discretion, the claims/ objections of remaining operational creditors, even after 90% votes in CoC are in favour of such application and the applicant is willing to withdraw the application filed u/s 7, 9 or 10 of IBC, 2016.

 NCLAT (2024.04.30) in M/s Vijay Trading Co & Ors. Vs. Ms Reshma Mittal, & Ors. [Company Appeal (AT) (INS) NO.1029, 1046 & 1046 OF 2022] held that;

• From the plain reading of Section 12A it is clear that withdrawal of CIRP has to satisfy twin requirements of an application by the applicant including approval of CoC by at least 90% voting share.

• The application for withdrawal as per the Regulation 30A read with Section 12A has to be necessarily made by the applicant who has initiated CIRP by filing application under Section 7, Section 9 or Section 10 of IBC, 2016. The provisions of the Code and IBBI (CIRP) Regulations, 2016 regarding this are sufficiently clear.

• It is clear that once the Code gets triggered by admission of the creditor’s petition under Section 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.

• The main thrust against the provision of Section 12-A is the fact that ninety per cent of the Committee of Creditors has to allow withdrawal.  it is clear, that under Section 60 of the Code, the Committee of Creditors arbitrarily rejects a just settlement and/ or withdrawal claim, NCLT, and thereafter, NCLAT can always set aside such decision under Section 60 of the Code.

• There appears to be no room for any other interpretation to Section 12A to include in its discretion, the claims/ objections of remaining operational creditors, even after 90% votes in CoC are in favour of such application and the applicant is willing to withdraw the application filed u/s 7, 9 or 10 of IBC, 2016.

Excerpts of the order;

30.04.2024: The present three appals are filed against the same impugned order dated 07.07.2022 passed by the Adjudicating Authority, National Company Law Tribunal, Chandigarh allowing CA No.846/2019 of RP seeking withdrawal of CIRP under Section 12 A of the Code thereby rendering the CA No.737/2019 filed by the Appellant as infructuous. We are disposing the above appeals by this common order.

FACTS OF THE CASE: 

# 2. M/S Aayush Trading Co (Respondent No. 3) had filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016(hereinafter refered to ‘Code’) for initiating Corporate Insolvency Resolution Process (hereinafter referred as CIRP) against Monika Freshway Foods Pvt Ltd (hereinafter referred to as Corporate Debtor). The Ld. Adjudicating Authority admitted the CP(IB) No.191/Chd/Hry/2018 on 28.11.2018 and vide order dated 04.12.2018 the orders for declaring the moratorium in terms of Section 14 of the Code was passed and Mr. Tarun Batra was appointed as an Interim Resolution Professional.

# 3. The IRP commenced the CIRP and constituted the Committee of Creditors (hereinafter referred to as CoC). Thereafter, the IRP in terms of Section 13(I)(b) of the Code read with Section 15 called for the submission of claims against Corporate Debtor in the 1st CoC Meeting. The Appellant has supplied the goods to the Corporate Debtor therefore falls under the definition of Operational Creditor and submitted its claim under Form B.

# 4. The Appellant was made a member of CoC as Operational Creditor without voting rights, in terms of the provisions of the Code. In the first meeting of CoC conducted on 03.01.2019 the IRP informed the factory premises has been in the possession of the Union Bank of India i.e. one of the Financial Creditors. It was also informed by the IRP that on visit, IRP found some of the machineries of the Unit missing and assured for the recovery of the lost machinery. However, nothing was informed of the action taken either by the Union Bank of India or the IRP to report the missing machinery which ultimately affected the going concern of the Corporate Debtor. 

 

# 5. The second CoC was conducted on 22.02.2019 wherein the Respondent No. 2 objected for inclusion of Respondent No. 3 as financial creditor considering the fact the Respondent No. 3 is an Operational Creditor being supplier to the Corporate Debtor. The IRP informed the claim of Respondent No. 3 has been provisionally admitted based on the claim form received which is yet to be verified since the books of the Corporate Debtor are still not available. The IRP also informed he kept requesting the Respondent No. 2 for handover of the possession of the factory but there was no response from UBI. The UBI stated since they wish to appoint RP out of their own panel and choice, they will handover the possession of the factory to the newly appointed RP only. The Promoter stated they were in talks with UBI over settlement. The UBI allegedly not only delayed in handover of possession but also in appointment of valuers, transaction auditor in order to have their chosen Resolution Professional. UBI also stated if the IRP appoints any professional, the same will be changed as soon as new RP is appointed.

 

The dues of Appellant alongwith other Operational Creditors constitute 74% of the total debt amount.

# 7. The RP conducted 4th meeting and published/republished the Form-G of Expression of Interest (hereinafter referred as 'EOI') inviting submission of resolution plan for Corporate Debtor on 19.03.2019 and on 26.04.2019 respectively.

# 8. In the 5th meeting of the members of COC the Respondent No. 1 informed no Resolution plan has been received in pursuance to the EOI published. The Respondent No. 2 Union Bank of India instantly informed that the Corporate Debtor has reached settlement with Bank and therefore the Bank has decided to file an application seeking withdrawal of CIRP under Section 12A of the Code. No representative for original Applicant i.e. R3 Aayush Trading Co. was present in the meeting. However, the meeting was adjourned for 2 hours and after two hours, the original Applicant made himself present and stated his dues also have been settled by Mr. Ramesh Sharma, Ex-director of Corporate Debtor and he wishes to withdraw the Application.

# 9. The Appellant and other Operational Creditors viz Vijay Trading Company, Paul Trading Co. inquired about settlement of their dues to which Mr. Ramesh Sharma assured them to settle in 3-4 days. However, with an intent to defraud the Appellant and other Operational Creditors, the Respondent No. 1 RP placed the agenda for withdrawal in the 5th meeting COC itself and the financial creditors resolved to withdraw Section 9 Petition filed by M/s Aayush Trading Co. under Section 12A of the Code without considering the fact the claim of the 74% of the total debt has not been settled.

# 10. As resolved in the 5th meeting of COC, and despite being aware of the fact the ex-management has not settled with the Appellant and other operational creditors constituting 74.24% of the total debt amount of Corporate Debtor, Respondent No. 1 filed an Application bearing C.A. No. 556/2019 seeking withdrawal of CIRP. The Respondent No. 1 did not make the Appellant and other as party. The said application, however, came to be dismissed on 23.08.2019 on account of non-compliance of Regulation 30A of the CIRP Regulation and the applicable provisions of the Code.

# 11. Pursuant to dismissal of withdrawal application bearing number 556/2019, the RP conducted the 6th COC meeting on 31.08.2019 in which the Appellant made the representation addressed to the RP regarding discriminatory treatment with the Appellant. It was submitted the Director had settled with the Original Applicant i.e. an Operational Creditor but has not settled with the Appellant till date despite being assured of and thus requested not to press section 12A application.

# 12. Despite pointing out several illegalities, the COC and RP again discussed and decided to file Section 12A application (Agenda No. 2 of 6th COC meeting). The Respondent No. 2 UBI suggested the RP to appoint their suggested lawyer for the proceeding. In the same meeting the Respondent No. 2 also raised objection of filing of application reporting fraudulent and preferential transactions. The Appellant, being aggrieved by this, filed an application under Section 60(5) of the Code read with Rule 11 of the NCLT Rules bearing No. 737/2019 praying to declare Agenda No. 6 in 5th COC meeting and Agenda No. 2 in 6th COC meeting as null and void, whereby RP was directed to move Section 12 A application.

# 13. During the pendency of hearing on the Application CA No. 737/2019, 737/2019 and 738/2019 the ex-management kept on seeking time from the Ld. Adjudicating Authority to negotiate and settle with all the three Operational Creditors including the Appellant.

# 14. Vide Impugned Order dated 07.07.2022 the Hon'ble Adjudicating Authority, without appreciating the grounds and without adjudicating on merit, dismissed all the pending applications (including Appellant's application bearing No. 737/2019 and avoidance application bearing C.A. No. 559/2019 filed by the RP filed way before of Section 12A Application) while allowing the Section 12A application bearing No. C.A. No. 846/2019 filed by the RP on 16.09.2019. Thus it is argued the impugned order is in violation of legal provisions, judicial precedents and also violates the right of the Appellant.

# 15. The appellants have challenged the impugned order on the ground the Ld. NCLT has approved a wholly arbitrary and capricious decision of COC by allowing CA No.846/2019 seeking withdrawal of CIRP against the Corporate Debtor in view of settlement with Respondent No.2 and 3, without acknowledging the claims of other Operational Creditors and that of the appellant forming majority (74%) of the total debt having not been settled. It is argued the Adjudicating Authority in a wholly mechanical manner has approved an application under Section 12A of the Code without deciding the pending applications interalia of the appellant and application seeking avoidance of transactions.

# 16. It is argued the CIRP is a proceeding in rem and, therefore, the ex-management has to propose omnibus settlement. It is argued despite the assurance given by the COC that it will settle 75% of the debt in favour of the appellant it had gone ahead with settlement without settling the debt of the appellant.

# 17. We have heard the counsel for the appellants.

# 18. After initiation of CIRP, the enabling provisions for withdrawal of CIRP are contained only in Section 12A of IBC, 2016. Section 12A is reproduced below for ready reference:-

• “Section 12A, 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 percent voting share of the committee of creditors, in such manner as may be specified.

# 19. From the plain reading of Section 12A it is clear that withdrawal of CIRP has to satisfy twin requirements of an application by the applicant including approval of CoC by at least 90% voting share. The word applicant is defined in Regulation 2(1)(a) of IBBI (CIRP) Regulations, 2016 as under:-

• “APPLICANT” means the person(s) filing an application under sections 7, 9 or 10, as the case may be;

# 20. Regulation 30A of IBBI (CIRP) Regulations, 2016 specifies the procedure and form in which application for withdrawal of CIRP has to be made. As per the provisions of IBBI (CIRP) Regulations, 2016 the application for withdrawal of CIRP under Section 12A of IBC, 2016 may be made to the Adjudicating Authority through IRP by the applicant in Form-A, specified in Schedule accompanied by a bank guarantee towards the estimated expenses made by the IRP. The application for withdrawal as per the Regulation 30A read with Section 12A has to be necessarily made by the applicant who has initiated CIRP by filing application under Section 7, Section 9 or Section 10 of IBC, 2016. The provisions of the Code and IBBI (CIRP) Regulations, 2016 regarding this are sufficiently clear. Admittedly in the present case these twin conditions stands satisfied viz; application u/s 12A being moved by the applicant who initiated CIRP and 90% voting is in favour of the application.

# 21. The counsel for the appellant however referred to Swiss Ribbons Private Limited and Another Vs. Union of India & Ors. 2019 SCC OnLine SC 73 to say provisions of Section 12 A of IBC, 2016 gives discretion to the Adjudicating Authority to even discuss such application even if twin conditions are satisfied, provided other facts are grave and support exercise of such discretion. Paras 82 and 83 of the judgment are referred to as under:-

• 82. It is clear that once the Code gets triggered by admission of the creditor’s petition under Section 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 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.

• 83. The main thrust against the provision of Section 12-A is the fact that ninety per cent of the Committee of Creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, 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 the Code, the Committee of Creditors arbitrarily rejects a just settlement and/ or withdrawal claim, NCLT, and thereafter, NCLAT can always set aside such decision under Section 60 of the Code. For all these reasons, we are of the view that Section 12-A also passes constitutional muster.

# 22. The counsel for the appellant also referred to Gopal Krishna Bathla vs. Crown Realtech Pvt. Ltd. and Anr.: 2020 SCC OnLine NCLAT 1070 and Dinesh Gupta vs. Rolta India Ltd.: 2021 SCC OnLine NCLT 664. In both these cases CoC was never constituted and hence Section 12A (supra) application was rejected on facts but whereas in the present case COC was in place.

# 23. It is urged since in the present case assurances were given to the appellants by Suspended Directors as is recorded in various CoC meetings, the bench ought to have considered such facts before allowing application under Section 12(A) of the Code and discretion u/s 12(A) ought to have been exercised. We disagree. The impugned order passed was rather in line with para 83 of Swiss Ribbons’ Case. 

 

# 24. The learned counsel for the appellant has failed to show any judgement to say beyond twin conditions as are given in Section 12A of the Code, the Adjudicating Authority ought to have considered other facts. The impugned order take notes of provisions of Section 12A of ‘Code’ and Regulation 30A of IBBI (CIRP) Regulation, 2016 while allowing such application and liberty was granted to the appellants to approach the Tribunal with their claim(s) independently and if required to seek recourse elsewhere, if advised so.

# 25. There appears to be no room for any other interpretation to Section 12A to include in its discretion, the claims/ objections of remaining operational creditors, even after 90% votes in CoC are in favour of such application and the applicant is willing to withdraw the application filed u/s 7, 9 or 10 of IBC, 2016. There appear to be no illegality in the impugned order and hence we are of the opinion the appeals are devoid of merit(s), hence are dismissed.

# 26. Pending applications, if any, also stand disposed of. 

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Mr. Harendra Singh Khokhar Vs Indarprashtha Buildtech Pvt. Ltd. & Anr. - Hon'ble Supreme Court accepted the compromise settlement between the suspended director of CD & sole creditor & closed the CIRP;.

 SCI (2024.05.10) in Mr. Harendra Singh Khokhar Vs Indarprashtha Buildtech Pvt. Ltd. & Anr. [Civil Appeal No. 6777 Of 2022] accepted the compromise settlement between the suspended director of CD & sole creditor & closed the CIRP;.

• The parties have compromised and settled the matter in terms of the Deed of Settlement dated 01.02.2024. As per the agreement, two demand drafts totaling to Rs.5 crores have been handed over by the learned counsel for the appellant - Harendra Singh Khokhar to the learned counsel for respondent no. 1 - Indraprashtha Buildtech Pvt. Ltd. . . . . .Recording the aforesaid, I.A. no. 31706/2024 is allowed. The Corporate Insolvency Resolution Process against respondent no. 2 – M/s. Anjani Realtors Pvt. Ltd. will be treated as closed.

Excerpts of the order;

A joint application has been filed by the appellant - Harendra Singh Khokhar (Director of the Corporate Debtor/respondent no. 2 – M/s. Anjani Realtors Pvt. Ltd.) and the operational creditor/respondent no. 1 - Indraprashtha Buildtech Pvt. Ltd.

The parties have compromised and settled the matter in terms of the Deed of Settlement dated 01.02.2024. As per the agreement, two demand drafts totaling to Rs.5 crores have been handed over by the learned counsel for the appellant - Harendra Singh Khokhar to the learned counsel for respondent no. 1 - Indraprashtha Buildtech Pvt. Ltd.

By order dated 28.02.2024, we had asked the appellant - Harendra Singh Khokhar to file an affidavit stating as to whether there are any other creditors. As per the affidavit filed by the Resolution Professional – Mr. Piyush Moona, there was only one creditor in the Committee of Creditors, namely, respondent no. 1 - Indraprashtha Buildtech Pvt. Ltd. However, in paragraphs 11 and 12 of the said affidavit, reference has been made to the dues payable  to the Resolution Professionals including the erstwhile Resolution Professional.

Paragraph 11 of the affidavit records that dues of Interim Resolution Professional – Mr. Amit Talwar have been paid by cheque. However, dues of the Resolution Professional – Mr. Piyush Moona have been paid partly to the extent of Rs. 3,26,000/- (Rupees three lakhs twenty-six thousand only).

Learned counsel for the appellant states that the appellant - Harendra Singh Khokhar shall make payment of Rs.5,00,000/- (Rupees five lakhs only) in terms of the affidavit to the Resolution Professional – Mr. Piyush Moona, within a period of ten days from today. In case of non-payment, it will be open to the Resolution Professional – Mr. Piyush Moona to file an application before the National Company Law Tribunal for recovery of this amount. 

Recording the aforesaid, I.A. no. 31706/2024 is allowed. The Corporate Insolvency Resolution Process against respondent no. 2 – M/s. Anjani Realtors Pvt. Ltd. will be treated

as closed.

In view of the order passed above, the appeal is disposed of. There shall be no order as to costs.

Pending application(s), if any, shall stand disposed of.

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