2024 INSC 811 Page 1 of 61

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No. 9986 of 2024

GLAS Trust Company LLC …Appellant

Versus

BYJU Raveendran & Ors. …Respondents

And With

Special Leave Petition (C) No. 21023 of 2024

Page 2 of 61

J U D G M E N T

Dr Dhananjaya Y Chandrachud, CJI

Table of Contents

A. Background ................................................................................................... 5

i. Parties before this Court ........................................................................... 5

ii. Proceedings before the US Courts .......................................................... 6

iii. Insolvency proceedings against the first respondent ........................ 8

iv. Settlement between the parties and proceedings before the NCLAT .. 9

v. Impugned Judgement ............................................................................. 14

vi. Proceedings before this Court and the Delaware Court ...................... 16

B. Issues ....................................................................................................... 18

C. Submissions ............................................................................................ 18

D. Legal Background ....................................................................................... 23

i. Legal context and fundamental principles ............................................ 23

a. General principles underlying the IBC .................................................... 23

b. Nature of the proceedings after admission of the application ................ 27

ii. Legal framework for withdrawal and settlement of claims .................. 31

a. Evolution of the legal framework ............................................................ 31

b. Insights from the evolution of the legal framework ................................. 44

iii. Scope of ‘Inherent Powers’ under Rule 11 ........................................ 49

Page 3 of 61

E. Application to the instant case .................................................................. 51

i. Locus of the appellant before this Court .............................................. 52

ii. Approach of the NCLAT in the Impugned Judgement ......................... 54

iii. Decisions of this Court cited in the Impugned Judgement ............. 57

F. Conclusion ............................................................................................... 60

Page 4 of 61

1. This appeal arises from a judgment of the National Company Law Appellate

Tribunal, Chennai

1

dated 2 August 2024.

2

The National Company Law Tribunal,

Bengaluru,

3

admitted the application instituted by the second respondent under

Section 9 of the Insolvency and Bankruptcy Code

4

and initiated the corporate

insolvency resolution process

5

against the third respondent. In the exercise of

its powers under Rule 11 of the National Company Law Appellate Tribunal

Rules, 2016

6

, the NCLAT approved a settlement in relation to the dues payable

to the third respondent by the second respondent and set aside the order of the

NCLT.

2. The appellant, who claims to be a Financial Creditor, had moved an application

before the NCLAT objecting to the approval of the settlement and questioned

the source of the funds for the settlement. The objections of the appellant were

rejected by the NCLAT in the Impugned Judgement. Th e present appeal raises

substantial questions about the legal framework governing the withdrawal of a

CIRP; the settlement of claims after the admission of an application instituted

by a debtor; and the scope of the inherent powers vested in t he NCLAT under

Rule 11 of the NCLAT Rules.

1

“NCLAT”

2

“Impugned Judgement”

3

“NCLT”

4

“IBC”

5

“CIRP”

6

“NCLAT Rules”

PART A

Page 5 of 61

A. Background

i. Parties before this Court

3. The third respondent, Think and Learn Pvt Ltd, a company engaged in the

business of providing online educational services, is the Corporate Debtor.

7

The

first respondent, Byju Raveendran and his brother, Riju Ravee ndran are former

directors of the Corporate Debtor.

4. The second respondent, the Board of Control for Cricket in India (BCCI) is an

Operational Creditor who executed a ‘Team Sponsor Agreement’ dated 25 July

2019 with the Corporate Debtor, which relates to the sponsorship of the Indian

National Cricket T eam.

5. The Corporate Debtor has a 100% owned subsidiary, Byju’s Alpha Inc. – a

company incorporated in the United States of America. Byju’s Alpha Inc. availed

a loan facility aggregating to approximately USD 1,200,000,000 under a credit

and guarantee agreement dated 24 November 2021.

8

The Appellant, GLAS

Trust Company LLC, is the ‘Administrative Agent’ of all the l enders under this

agreement and the ‘Collateral Agent’ for the secured parties. Under the terms

of the Credit Agreement, the Corporate Debtor acted as a guarantor and issued

a guarantee deed dated 24 November 2021 in favour of the appellant.

7

“Corporate Debtor”

8

“Credit Agreement”

PART A

Page 6 of 61

ii. Proceedings before the Delaware Court

6. On account of an alleged default under the Credit Agreement, the appellant

enforced the security in respect of the l oan and took a series of steps that

resulted in the removal of all pre- existing directors of Byju’s Alpha Inc., including

Riju Raveendran and the appointment of a new sole director. The appellant

contends that despite these measures, defaults persisted in payment of the

principal outstanding amount and the interest accrued under the Credit

Agreement.

7. Accordingly, the appellant, acting as the Administrative Agent of the lenders,

issued a notice of demand dated 6 December 2023 to the Corporate Debtor,

invoking the guarantee deed and demanding that the Corporate Debtor pay the

requisite amount. However, it is the case of the appellant, that the Corporate

Debtor too defaulted in its capacity as the guarantor under the Credit

Agreement.

8. It is contended that a series of wire transfers were carried out in April and July

2022 by Byju’s Alpha Inc., allegedly at the behest of the Corporate Debtor,

fraudulently transferring approximately USD 533 million to a hedge fund based

in the United States. A motion for preliminary injunctive relief to protect this

amount was moved before the United States Bankruptcy Court, District of

Delaware

9

.

9

“Delaware Court”

PART A

Page 7 of 61

9. On 18 March 2024, the Delaware Court issued a preliminary injunction inter alia

restraining Riju Raveendran, another wholly owned subsidiary of the Corporate

Debtor, the concerned hedge fund, and other similarly placed persons from

taking any steps to spend, transfer, exchange, convert, dissipate, liquidate, or

otherwise move or modify any rights related to the USD 533 million transferred

from Byju’s Alpha Inc to the hedge fund. The operative directions of the order

passed by the Delaware Court read as follows:

“Defendants Riju Ravindran, Inspilearn LLC

("Inspilearn"), Camshaft Capital Fund LP, Camshaft

Capital Advisors, LLC, Camshaft Capital

Management, LLC; and any of such parties' officers,

agents, servants, employees, and attorneys, and

any other persons who are in active concert or

participation with the foregoing, including, Byju

Raveendran and Divya Gokulnath (collectively, the

"Enjoined Parties") are immediately enjoined,

upon entry of this Order, from taking any steps

to spend, transfer, exchange, convert, dissipate,

liquidate, or otherwise move or modify any rights

related to: (i) the funds that in the approximate

amount of $533,000, I00.00 transferred from the

Debtor to Camshaft Capital Fund, LP in April and

July 2022, (ii) the funds (or other assets)

transferred to and/or redeemed by a non- U.S.

trust on behalf of lnspilearn on or about February

1 , 2024, and (iii) the funds (or other assets) that

were purportedly subsequently transferred to a

"non- US based 100% subsidiary of BYJU'S,"

along with any associated accrued interest or

proceeds, in each case ((i), (ii), and (iii)

collectively, the "Alpha Funds").”

(emphasis supplied)

10. On 28 May 2024, the Delaware Court passed an order finding that Riju

Raveendran was in contempt of the above preliminary injunction order dated

18 March 2024. The Delaware Court directed that “f ull discovery shall

immediately commence concerning Mr Ravindran's financial situation,

PART A

Page 8 of 61

including, but not limited to, the location and amounts of his assets wherever

and however held, including (i) how much money he has, including funds in his

personal bank account(s), and (ii) what other assets he holds” and posted the

case to a later date to determine the financial penalties to be imposed on Riju

Raveendran. Eventually, on 31 July 2024, the Delaware Court imposed

financial penalties of USD 10,000 per day on Riju Raveendran, which is payable

until the contempt is ”purged by him”.

iii. Insolvency proceedings against the first respondent

11. On 23 September 2023, the second respondent moved a petition under Section

9 of the IBC, in respect of an operational debt of approximately Rs 158 crore

payable by the Corporate Debtor under the Team Sponsor Agreement .

10

The

NCLT admitted the petition on 16 July 2024 and initiated CIRP.

11

A moratorium

under Section 14 of IBC was imposed and an Interim Resolution Professional ,

12

was appointed.

12. Separately, the appellant also filed a petition under Section 7 of the IBC against

the Corporate Debtor on 22 January 2024.

13

On 16 July 2024, the NCLT

disposed of the Section 7 petition, in view of the order passed on the same day

admitting the Section 9 petition filed by the second respondent.

14

The appellant

was granted liberty to file their claims before the IRP appointed pursuant to the

10

Company Petition (IB) No. 149/BB/2023 (“Section 9 Petition”)

11

“Section 9 Order”

12

“IRP”

13

Company Petition (IB) No. 55/BB/2024 (“Section 7 Petition”)

14

“Section 7 Order”

PART A

Page 9 of 61

Section 9 Order. Significantly, the NCLT also granted liberty to the appellant to

seek a revival of its Section 7 petition , “depending on the subsequent

developments at the appellate level, if any.” The NCLT directed as follows:

“3. In view of the order passed today i.e., 16.07.2024

by this Adjudicating Authority in another Company

petition bearing C.P (IB) No.149/BB/2023 which is filed

by The Board and Control for Cricket in India under

Section 9of the I & B Code 2016 r/w Rule 6 of the

Insolvency & Bankruptcy (Application to Adjudicating

Authority) Rules 2016, against the same Corporate

Debtor herein i.e., Think & Learn Private Limited and

since the Corporate Insolvency Resolution Process

(CIRP) has been initiated in respect of the Corporate

Debtor therein by appointing the IRP, the instant C.P

is disposed of by granting liberty to the Petitioner

herein to put- forth their claim before the IRP

appointed in C.P (IB) No. 149/BB/2023 in

accordance with the provisions of the IBC 2016 and

the Regulation made thereunder.

4. However, at the request of the Learned Senior

Counsel for the Petitioner, we hereby grant liberty to

the Petitioner to seek restoration/revival of the said

petition bearing C.P (IB) No.55/BB/2024 depending

on the subsequent developments in the matter at

the Appellate level; if any.”

(emphasis supplied)

13. The IRP made a public pronouncement on 17 July 2024 and the appellant filed

its claim in the prescribed format on 25 July 2024.

iv. Settlement between the parties and proceedings before the NCLAT

14. Both the appellant and the first respondent moved the NCLAT in appeal against

the respective orders of the NCLT. The first respondent challenged the

admission of the Section 9 petition by the NCLT.

15

On the other hand, the

15

CA (AT) (CH) (Ins) No. 262 of 2024.

PART A

Page 10 of 61

appellant challenged the order disposing of the Section 7 petition.

16

The

appellant also moved an application before the NCLAT for impleadment in the

appeal filed by the first respondent, seeking to be heard before any relief was

granted.

17

15. The appeal instituted by the first respondent was placed before the NCLAT for

the first time on 30 July 2024 and adjourned on a request made by the senior

counsel for the second respondent. On the next date of the hearing, i.e. 31 July

2024, it was recorded, based on the submissions by the counsel for the first

and second respondents, that a sum of INR 50 crore had been transferred to

the second respondent as part of a settlement. The counsel for the first

respondent further submitted, before the NCLAT, that another sum of Rs 25

crore would be paid by 2 August 2024, and the balance amount of Rs 83 crore

would be paid thereafter , on or before 9 September 2024.

18

16. The payment was purportedly made pursuant to a settlement offer extended by

Riju Raveendran, in his personal capacity, to the second respondent by an

email dated July 30, 2024. He proposed to clear the operational debt of Rs 158

crore in three tranches on 30 July 2024,

19

2 August 2024 and 9 August 2024,

respectively. The second respondent agreed to take steps for withdrawal of the

16

CA (AT) (CH) (Ins) No. 274 of 2024.

17

I.A. No. 727 of 2024.

18

Impugned Judgement, paras 9- 11.

19

The settlement offer inadvertently stated “ 30 June 2024” , which was clarified to be a typographical error

for 30 July 2024.

PART A

Page 11 of 61

petition upon receipt of full payment of the operational debt. Relevant excerpts

of the email are as follows:

“1.⁠ ⁠We undertake to pay INR. 50 crores upfront

today i.e. 30 June 2024, by way of RTGS from the

account of its promoter, Mr. Riju Ravindran. We shall

forward the UTR details of the same shortly.

2.⁠ ⁠We further undertake to pay INR. 25 crores on 02

August 2024 through RTGS.

3.⁠ ⁠The total dues are approximately INR. 158 crores.

4.⁠ ⁠The balance amount of INR. 83 crores to complete

the figures of INR. 158 crores shall be paid on or

before 09 August 2024.

5.⁠ ⁠We shall also hand over post-dated cheques to

the tune of INR. 83 crores drawn in favour of “Board

of Control for Cricket in India” payable on 09 August

2024.

6.⁠ ⁠In view of the aforesaid proposed settlement, the

parties shall jointly request the Hon’ble NCLAT on

31 July 2024 to suspend the order of admission of

Think & Learn Pvt. Ltd passed by the NCLT until 09

August 2024.

7.⁠ ⁠Further, once the payment of complete INR. 158

crores to BCCI is made, BCCI shall make statement

to withdraw the Company Petition and take

necessary steps towards the same.”

17. It is common ground that on 31 July 2024, when the parties sought to place the

settlement on record, although CIRP had been initiated and an IRP had been

appointed, the CoC had not been constituted. Before the NCLAT, the second

respondent stated that in view of the money being generated in India and

coming through a banking channel, it shall be accepted and was in favour of

the withdrawal of CIRP. The appellant, however, raised several objections,

including inter alia that the alleged payment made by Riju R aveendran would

constitute a preferential payment to an operational creditor. Further, the

appellant contended that the source of the funds is not clear, and the amount

being offered by Riju Raveendran to settle the debt of the second respondent

PART A

Page 12 of 61

would constitute an act of round- tripping. The appellant apprehended that the

funds of Byjus’s Alpha Inc. were being offered to settle dues in India, in

contravention of the preliminary injunction issued by the Delaware Court on 18

March 2024.

18. On 1 August 2024, an affidavit was filed along with an undertaking by Riju

Raveendran. The affidavit of Riju Raveendran could purportedly not be filed in

time as he was not in India and thus, the undertaking was filed through an

authorized representative. In the undertaking, Riju Rav eendran affirmed that (i)

the money being offered for settlement between the Corporate Debtor and the

second respondent was being paid from his personal funds, including the sale

of shares held by him in the Corporate D ebtor; (ii) the money was generated in

India and is not linked to the money involved in the proceedings pending in the

Delaware Court; (iii) the first respondent (Byju Raveendran) has not transferred

any money or extended any security towards raising the sums for payment of

the settlement amount. The undertaking reads as follows:

“…

3. I state and confirm that no part of the Settlement

Amount is being paid in violation of any order passed

by any court or tribunal, including orders passed by

the Delaware Bankruptcy Court.

4. I have not received any portion of the USD 533

million that are the subject matter of the proceedings

before the Delaware Bankruptcy Court and,

accordingly, no part of those funds have been, or will

be, used to pay the BCCI. In fact, the funds forming

part of the Settlement Amount are being paid out of

my personal funds, as explained in paragraph 8

below.

5. To clarify, under the terms of the Credit

Agreement dated 24 November 2021 (the "Credit

Agreement"), a group of lenders represented by

PART A

Page 13 of 61

GLAS Trust LLC (GLAS) disbursed an amount of

USD 1.2 billion to Byju's Alpha, Inc. (a step- down

subsidiary of Think & Learn Pvt. Ltd. (TLPL)). Under

the Credit Agreement, monies disbursed thereunder

could not be brought into India. Therefore, none of

the monies disbursed under the Credit Agreement

(of which the USD 533 million forms a part) has ever

been brought into India. Indeed, the allegation that I

have received any sum of monies disbursed under

the Credit Agreement has never been made by

GI.AS in any proceeding whatsoever, including the

proceeding under Section 7 of the IBC filed by it

before the NCLT.

6. I specifically confirm that there has been no

violation of the Order dated 18 March 2024 passed

by the Delaware Bankruptcy Court, and I have not

taken any steps in contravention of the same. I also

confirm that I have not directly, indirectly or in any

form or manner received any sum of money from

disbursements made under the Credit Agreement. In

fact, the foreign remittance received by me since

execution of the Credit Agreement is from two

secondary sales of my shareholding in TLPL in

January and November 2022 totalling approximately

USD 109 million, as demonstrated by the SH-4

annexed hereto …

7. I further confirm that Byju Raveendran has not

transferred any money or extended any security of

his assets towards raising the sums for payment of

the Settlement Amount to the BCCI.

8. I further state and confirm that the Settlement

Amount comprises funds raised by me personally:

a. from the sale and the gains/income on such sale

of shares held personally by me in TLPL between

May 2015 and January 2022. By way of these

sales, I had accumulated approximately INR 3600

crores. The forms SH-4 evidencing these sales are

hereto annexed and marked Exhibit A. Out of the

aforementioned amount, approximately INR 1050

crores was paid as income tax. The IT returns filed

by me over the relevant period and which would

reflect these amounts are hereto annexed and

marked Exhibit B. The remaining amounts of

approximately INR 2600 crores was infused back

into TLPL due to its operational needs and to

ensure that TLPL continues to carry on business

PART A

Page 14 of 61

as a going concern, including paying salaries to its

27000 employees and sustaining the platform

which has over 150 million students worldwide

(which is a matter of record). The amounts that

remained with me were used to pay the first

tranche of the Settlement Amount (in the amount

of INR 50 crores) to BCCI on 30 June 2024; and

b. from liquidation of personal assets in India,

which will be used to pay the balance amount of

the Settlement Amount.”

19. In view of these developments, on 1 August 2024, the NCLAT passed an interim

order staying the constitution of the CoC.

v. Impugned Judgement

20. Before the NCLAT, the appellant contended that (i) Section 12A of the IBC and

Regulation 30A of the CIRP Regulations 2016 deal with the settlement of claims

after CIRP is initiated, both before and after the CoC is constituted. The first

respondent should have, thus, approached the NCLT as mandated by Rule 30A

instead of invoking the inherent powers of the NCLAT under Rule 11; (ii) NCLAT

should not exercise its discretionary power under Rule 11 of the NCLAT Rules

because the directors of the Corporate Debtor and its allied entities are

fugitives, living abroad; have defaulted on government dues; Enforcement

Directorate proceedings are pending, look out notices have been issued; and

there has been a significant drop in the valuation of the Corporate Debtor; and

(iii) the interests of all creditors must be considered while accepting a

settlement, including the appellant who has a substantial interest with regard to

the Corporate Debtor.

PART A

Page 15 of 61

21. On 2 August 2024, the NCLAT delivered the Impugned Judgement. After

recording the factual background and submissions of the parties before it, the

NCLAT outlined its reasoning and analysis in paras 44 to 50 of the Impugned

Judgement. The NCLAT held the affidavit and undertaking filed by Riju

Raveendran made it clear that the money was generated by Riju Raveendran

from his own sources; income tax had been paid on the sales of shares from

which the amount was generated; and there was no violation of the Order dated

18 March 2024 passed by the Delaware Court either directly or indirectly.

Therefore, NCLAT held that in the absence of any evidence to the contrary,

there was no reason to believe that the money that was being offered by Riju

Raveendran was linked to the money disbursed to Byju’s Alpha Inc . under the

Credit Agreement or from the coffers of the Corporate Debtor.

22. Further, it was held that the law regarding the settlement of disputes between

the parties is in the process of evolution, and this Court has approved the

invocation of Rule 11 of the NCLAT Rules to allow such settlements. Reliance

was placed on the decisions of this Court in Abhishek Singh vs Huhtamaki

PPL Limited

20

and Kamal K. Singh v. Dinesh Gupta

21

, in addition to decisions

of the NCLAT on the point. Further, it was held that the NCLT had granted the

appellant the liberty to revive its Section 7 petition, in case of any adverse

developments in the appellate proceedings in the Section 9 petition and thus,

the right of the applicant to enforce its claims was well protected.

20

2023 SCC Online SC 349

21

(2022) 8 SCC 330.

PART A

Page 16 of 61

23. Accordingly, the settlement between the parties was approved and the order of

the NCLT admitting the Section 9 petition was set aside. The NCLAT directed

that in case of a breach of the undertaking and affidavit, the Section 9 Order

would automatically be revived. The operative directions are extracted below:

“51. Thus, in view of the aforesaid facts and

circumstances, in view of the undertaking given and

affidavit filed, the settlement between the parties is

hereby approved and as a result thereof, the present

appeal succeeds and the impugned order is set

aside, however, with a caveat that in case there is a

breach in the undertaking given and the affidavit

filed, the order dated 16.07.2024 passed against the

present Appellant, shall automatically revive.”

vi. Proceedings before this Court and the Delaware Court

24. On 1 August 2024, Byju’s Alpha Inc . and the appellant instituted a motion before

the Delaware Court seeking a temporary restraining order against Riju

Raveendran, inter alia restraining him from using his personal assets to satisfy

the dues of the second respondent. Before the Delaware Court, the appellant

contended that fraudulent payments were being made by Riju Raveendran to

pay the operational debt due to the second respondent and dismiss insolvency

proceedings against the Corporate Debtor, which is “his older brother’s

crumbling business enterprise in India”. On 8 August 2024, the Delaware Court

passed an order reject ing the motion.

25. The appellant instituted the present Civil Appeal before this Court, challenging

the Impugned Judgement of the NCLAT. By an Order dated 14 August 2024,

this Court issued notice on the appeal and directed that there would be a stay

PART A

Page 17 of 61

on the operation of the Impugned Judgment. The second respondent was

directed to maintain the amount of Rs 158 crores, which has been realized in

pursuance of the settlement, in a separate escrow account, to abide by further

directions of this Court.

26. In view of the above directions of this Court granting an interim stay on the

Impugned Judgement, the CIRP proceedings resumed. On 19 August 2024,

the IRP addressed a letter to the appellant noting that the CIRP had revived,

verified the claim submitted by the appellant and admitted the appellant as a

financial creditor. Accordingly, the IRP constituted the CoC, which consisted of

four financial creditors, including the appellant.

27. Subsequently, by a letter dated 1 September 2024, the IRP sought to

reconstitute the CoC and reclassify the claim of the appellant as ‘contingent’.

The IRP stated that the reclassification of the claim as ‘contingent’ was on

account of purported disqualification notices issued by the Corporate Debtor to

certain lenders of the l oan, which allegedly disqualified more than sixty percent

of the lenders and therefore, the appellant no longer had the requisite

authorization . From the record and submissions before us, it appears that the

first meeting of the CoC took place on 3 September 2024.

28. On 26 September 2024, this Court reserved its judgment and directed that the

IRP maintain the status quo and not hold any meeting of the CoC until the

judgment is pronounced.

PART B & C

Page 18 of 61

B. Issues

29. In view of the above background, the following issues arise for our

consideration:

a. Whether the appellant, who is not a party to the settlement between the

second respondent and the Corporate Debtor, has locus in the proceedings

before this Court;

b. Whether the NCLAT erred in invoking its inherent powers under Rule 11 of

the NCLAT Rules 2016 in the presence of a prescribed procedure for

withdrawal of CIRP and settlement of claims between parties ; and

c. Without prejudice to the above, whether the NCLAT adequately addressed

the objections raised by the appellant, while exercising its discretionary

power under Rule 11 of the NCLAT Rules 2016.

C. Submissions

30. Mr Kapil Sibal and Mr Shyam Divan, Senior Counsel appearing for the appellant

broadly advanced the following submissions:

a. NCLAT should have refrained from exercising its discretionary power under

Rule 11 of the NCLAT Rules to sanction the settlement when there is a

prescribed procedure for withdrawal and settlement under Section 12A of

the IBC read with Regulation 30A of the CIRP Regulations 2016;

b. The powers conferred on the NCLAT under Rule 11 of the NCLAT Rules

are discretionary and should not be exercised mechanically in cases where

the withdrawal of the application would prejudice other stakeholders and

PART C

Page 19 of 61

may result in numerous other creditors filing insolvency actions against the

Corporate Debtors on account of their unpaid dues;

c. NCLAT failed to deal with the objections raised by the appellant about the

source of the funds and the conduct of the first respondent and his brother,

Mr Riju Raveendran. Facts such as – the purported fraudulent transfer of

USD 533 million to a hedge fund in the United States; the orders of the US

Court restraining the brothers from transferring or dissipating the amount;

the contempt proceedings against Mr Riju Rav eendran; the ongoing

investigation by the Enforcement Directorate against the first respondent

and the Corporate Debtor; attempts by the Corporate Debtor to dissipate

assets – were not adequately dealt with in the I mpugned Judgement;

d. There are clear indications that the Corporate Debtor cannot service its

outstanding debts to its financial creditors. There has been a 99% drop in

the valuation of the Corporate Debtor, defaults in paying employees’

salaries, the exit of key managerial persons, failure to file financial

statements, and oppression and mismanagement petitions by the

shareholders against the promoters, all of which indicate that insolvency

proceedings are inevitable;

e. Setting aside the CIRP merely because one of the creditors has recovered

its dues by way of a settlement agreement, runs contrary to the settled

position that the IBC cannot be used as a recovery mechanism. U pon

initiation of insolvency, t hird-party rights are created in all creditors of the

corporate debtor; and

PART C

Page 20 of 61

f. Riju Raveendran failed to provide the details of the source of funds by way

of an affidavit. His undertaking was accompanied by an affidavit of a third

party who claims to be a power of attorney holder of Riju Raveendran. The

declaration in the undertaking is ambiguous and the figures mentioned do

not add up so as to enable him to make payments under the settlement

agreement.

31. Dr Abhishek Manu Singhvi and Mr Neeraj Kishan Kaul, Senior Counsel for the

first respondent advanced the following submissions:

a. The inherent powers of the NCLAT, under Rule 11 of the NCLAT Rules,

include the power to pass orders permitting the withdrawal of the CIRP. In

several judgements, after Section 12A was inserted in the IBC , the NCLAT

has invoked Rule 11 to permit the withdrawal of CIRP;

b. The appellant has no locus to maintain the present proceedings before this

Court. In a case of settlement between a corporate debtor and an individual

creditor, there is no scope for hearing any third- party creditor, as such a

creditor is free to adopt other remedies for its claims;

c. Despite liberty being granted to the appellant to revive its Section 7 petition,

the appellant has failed to do so, because a revival would lead to scrutiny

of the maintainability of the Section 7 petition. As the appellant has a weak

case on maintainability, it is seeking to piggyback on the Section 9 NCLT

Order and is opposing the settlement;

d. The appellant is indulging in forum shopping. Despite specific liberty to

revive its Section 7 petition, the appellant chose to move an appeal against

PART C

Page 21 of 61

the order of disposal and intervened in the proceedings before the NCLAT

instituted by the second respondent. In parallel, the appellant also initiated

proceedings before the Delaware Bankruptcy Court to stall the settlement;

e. The Corporate Debtor is an ed- tech services business, whose revenue is

generated from its intellectual property and subscriptions from students.

Revenues are likely to be hit with each day that the Corporate Debtor

continues into insolvency, which could lead to classes shutting down,

disruption of services, teachers resigning, and students dropping out; and

f. The Corporate Debtor is a solvent company with a running business of

27,000 employees and 150 million students. A viable company capable of

repaying its debts must not be admitted into CIRP.

32. Mr Tushar Mehta, the learned Solicitor General appearing for the second

respondent, supported the arguments of the first respondent in support of the

Impugned Judgement and also advanced the following submissions:

a. The IBC aims to prevent the economic death of entities, which involves

encouraging settlement between the parties. NCLAT passed the Impugned

Judgement after hearing all concerned parties. Thus, t here was no infirmity

in invoking inherent powers under Rule 11 of the NCLAT Rules 2016;

b. Regulation 30A was a statutory response to the decision of this Court in

Swiss Ribbons (P) Ltd. v. Union of India

22

and the intent is to encourage

settlement. The provision is directory as no consequence of non-

compliance is stipulated. It does not contemplate adjudication about the

22

(2019) 4 SCC 17.

PART C

Page 22 of 61

factum of settlement, the mode/method of settlement or any specific legal

ground by the NCLT;

c. Regulation 30A, even if applicable can have no application when the

settlement is made using personal funds and not the funds of the corporate

debtor; and

d. The payment to BCCI does not prejudice other creditors or stakeholders of

the Corporate Debtor as it is not made from the possible insolvency estate

that would be created if the Corporate Debtor goes through CIRP.

33. We also had an opportunity to hear the learned Senior Counsel who appeared

for the intervenors. Mr Gopal Sankarnarayan appeared for an entity that claims

to be another Operational Creditor. Another intervention application was moved

by several shareholders of the Corporate Debtor , who purportedly hold 16.75%

of its issued and the paid- up share capital. These shareholders have also

instituted proceedings under Sections 241, 242 and 244 of the Companies Act

2013 for oppression and mismanagement against the erstwhile management

of the Corporate Debtor, including the first respondent and Riju Raveendran.

The counsel for the intervenors advanced submissions broadly on the same

lines as the appellant. They assailed the acceptance of the settlement

agreement by the NCLAT and contended that insolvency proceedings against

the Corporate Debtor are inevitable.

PART D

Page 23 of 61

D. Legal Background

i. Legal context and fundamental principles

a. General principles underlying the IBC

34. Before delving into the provisions which constitute the legal framework for the

withdrawal of CIRP, it is crucial to delineate some of the underlying aims and

objectives which guide the IBC. These principles will assume relevance while

analyzing the locus of the appellant and the course of action adopted by the

NCLAT in the Impugned Judgement.

35. The Statement of Objects and Reasons for the IBC reads as follows:

“Statement of Objects and Reasons.—There is no

single law in India that deals with insolvency and

bankruptcy. Provisions relating to insolvency and

bankruptcy for companies can be found in the Sick

Industrial Companies (Special Provisions) Act, 1985,

the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993, the Securitisation and

Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 and the Companies

Act, 2013. These statutes provide for creation of

multiple fora such as Board of Industrial and

Financial Reconstruction (BIFR), Debts Recovery

Tribunal (DRT) and National Company Law Tribunal

(NCLT) and their respective Appellate Tribunals.

Liquidation of companies is handled by the High

Courts. Individual bankruptcy and insolvency is dealt

with under the Presidency Towns Insolvency Act,

1909, and the Provincial Insolvency Act, 1920 and is

dealt with by the courts. The existing framework for

insolvency and bankruptcy is inadequate, ineffective

and results in undue delays in resolution, therefore,

the proposed legislation.

2.The objective of the Insolvency and Bankruptcy

Code, 2015 is to consolidate and amend the laws

relating to reorganisation and insolvency resolution

PART D

Page 24 of 61

of corporate persons, partnership firms and

individuals in a time- bound manner for maximisation

of value of assets of such persons, to promote

entrepreneurship, availability of credit and balance

the interests of all the stakeholders including

alteration in the priority of payment of government

dues and to establish an Insolvency and Bankruptcy

Fund, and matters connected therewith or incidental

thereto. An effective legal framework for timely

resolution of insolvency and bankruptcy would

support development of credit markets and

encourage entrepreneurship. It would also improve

Ease of Doing Business, and facilitate more

investments leading to higher economic growth and

development.

[…]

5. The Code seeks to achieve the above

objectives.’”

36. The long title of the IBC provides that it is “an Act to consolidate and amend the

laws relating to reorganisation and insolvency resolution of corporate persons,

partnership firms and individuals in a time bound manner for maximisation of

value of assets of such persons, to promote entrepreneurship, availability of

credit and balance the interests of all the stakeholders including alteration in the

order of priority of payment of Government dues and to establish an Insolvency

and Bankruptcy Board of India, and for matters connected therewith or

incidental thereto.”

37. The objectives discernible from the long title and the S tatement of O bjects and

Reasons of the IBC were discussed in a decision of a two-judge bench of this

Court in Swiss Ribbons (P) Ltd. v. Union of India .

23

This Court observed that

23

(2019) 4 SCC 17.

PART D

Page 25 of 61

the IBC is a beneficial legislation which attempts to put the Corporate Debtor

back on its feet. According to this Court, this would involve considering the

interests of all concerned stakeholders rather than viewing the IBC as a mere

recovery legislation for individual creditors. This Court, speaking through

Justice RF Nariman, observed as follows:

“28. It can thus be seen that the primary focus of the

legislation is to ensure revival and continuation of the

corporate debtor by protecting the corporate debtor

from its own management and from a corporate

death by liquidation. The Code is thus a beneficial

legislation which puts the corporate debtor back

on its feet, not being a mere recovery legislation

for creditors. The interests of the corporate

debtor have, therefore, been bifurcated and

separated from that of its promoters/those who

are in management. Thus, the resolution process is

not adversarial to the corporate debtor but, in fact,

protective of its interests. The moratorium imposed

by Section 14 is in the interest of the corporate

debtor itself, thereby preserving the assets of the

corporate debtor during the resolution process. The

timelines within which the resolution process is to

take place again protects the corporate debtor's

assets from further dilution, and also protects all its

creditors and workers by seeing that the resolution

process goes through as fast as possible so that

another management can, through its

entrepreneurial skills, resuscitate the corporate

debtor to achieve all these ends.”

(emphasis supplied)

38. A two-judge Bench of this Court, speaking through one of us (DY Chandrachud,

J), in Arun Kumar Jagatramka v Jindal Steel & Power Ltd

24

also had

occasion to observe the quantum change in corporate governance and the rule

of law brought in by the enactment of the IBC. This Court observed as follows:

24

(2021) 7 SCC 474.

PART D

Page 26 of 61

“41. … First and foremost, the IBC perceives good

corporate governance, respect for and adherence to

the rule of law as central to the resolution of

corporate insolvencies. Second, the IBC perceives

corporate insolvency not as an isolated problem

faced by individual business entities but places

it in the context of a framework which is founded

on public interest in facilitating economic growth

by balancing diverse stakeholder interests.

Third, the IBC attributes a primacy to the

business decisions taken by creditors acting as

a collective body, on the premise that the timely

resolution of corporate insolvency is necessary

to ensure the growth of credit markets and

encourage investment. Fourth, in its diverse

provisions, the IBC ensures that the interests of

corporate enterprises are not conflated with the

interests of their promoters; the economic value

of corporate structures is broader in content

than the partisan interests of their

managements. These salutary objectives of the IBC

can be achieved if the integrity of the resolution

process is placed at the forefront. Primarily, the IBC

is a legislation aimed at reorganisation and

resolution of insolvencies. Liquidation is a matter of

last resort. These objectives can be achieved only

through a purposive interpretation which requires

courts, while infusing meaning and content to its

provisions, to ensure that the problems which beset

the earlier regime do not enter through the backdoor

through disingenuous stratagems.”

(emphasis supplied)

39. From the above, the following guiding principles emerge, which we must keep

in mind while determining the issues raised in the present appeal:

a. A significant change brought about by the IBC was the consolidation of the

pre-existing fragmented insolvency framework, The aim was to eliminate

parallel proceedings by various creditors before different fora, given that all

creditors would be a part of a single insolvency process under the IBC;

b. The above consolidation also sought to implement the principle of ‘ collective

distribution’ , where the interests of all stakeholders were considered. The

PART D

Page 27 of 61

CIRP envisaged by the IBC is premised on the principle that each creditor

of the same class should receive a share that is proportionate to the debt

owed to him;

c. IBC must not be used as a tool for coercion and debt recovery by individual

creditors. Improper use of the IBC mechanism by a creditor includes using

insolvency as a substitute for debt enforcement or attempting to obtain

preferential payments by coercing the debtor using insolvency proceedings.

That the mechanism under the IBC must not be used as a money recovery

mechanism has been reiterated in a consistent line of precedent by this

Court;

25

and

d. The interests of the corporate debtor must be detached from those of its

promoters/those who are in management. A “recalcitrant management”

26

must be prevented from taking advantage of undue delays and preventing

an inevitable insolvency. In other words, as noted by this Court in Arun

Kumar Jagatramka (supra), the economic value of corporate structures is

broader than the partisan interests of their management.

b. Nature of the proceedings after admission of the application

40. Chapter II of the IBC provides that CIRP can be invoked in three ways: (i) by a

financial creditor under Section 7; (ii) by an operational creditor under Section

9; and (iii) by a corporate debtor itself under Section 10.

27

Section 5(11) of the

25

Swiss Ribbons, para 28;

26

Mobilox, para 36.

27

Section 6, IBC reads: “6. Persons who may initiate corporate insolvency resolution process. – Where

any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor

PART D

Page 28 of 61

IBC defines the “initiation date” as the date on which the financial creditor,

operational creditor or corporate applicant makes an application to the NCLT

for initiating insolvency proceedings, including CIRP. This is distinct from the

“insolvency commencement date” which is defined in Section 5(12) of the IBC

as the date of admission of an application for initiating CIRP by the NCLT under

Sections 7, 9 or 10, as the case may be.

41. Once the application is admitted, the CIRP commences and the NCLT inter alia

declares a moratorium; issues a public pronouncement of the initiation of CIRP

and a call for submission of claims; and appoints an IRP.

28

Once an IRP is

appointed, the affairs of the corporate debtor are managed by the IRP,

29

who

inter alia receives and collates all the claims submitted by the creditors pursuant

to the public announcement of the CIRP.

30

After the collation of claims received

itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner

as provided under this Chapter.”

28

Sections 13, 14, 15, 16, IBC.

29

Section 17, IBC reads “17. Management of affairs of corporate debtor by interim resolution

professional. - (1) From the date of appointment of the interim resolution professional, -

(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall

stand suspended and be exercised by the interim resolution professional;

(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and

provide access to such documents and records of the corporate debtor as may be required by the interim

resolution professional;

(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the

interim resolution professional in relation to such accounts and furnish all information relating to the corporate

debtor available with them to the interim resolution professional.

(2) The interim resolution professional vested with the management of the corporate debtor, shall-

(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other

documents, if any;

(b)take such actions, in the manner and subject to such restrictions, as may be specified by the Board;

(c)have the authority to access the electronic records of corporate debtor from information utility having

financial information of the corporate debtor;

(d)have the authority to access the books of account, records and other relevant documents of corporate

debtor available with government authorities, statutory auditors, accountants and such other persons as may

be specified; and

(e) be responsible for complying with the requirements under any law for the time being in force on behalf of

the corporate debtor.”

30

Section 18(b), IBC.

PART D

Page 29 of 61

and the determination of the financial position of the corporate debtor, the IRP

shall constitute a CoC, which consists of all the financial creditors of the

corporate debtor.

31

The CoC appoints a Resolution Professional

32

and the CIRP

process continues, as prescribed.

42. From this scheme of Chapter II of the IBC, it appears that the admission of an

application is a significant event that alters the nature of the proceedings, and

the stakeholders involved. Initially, when the petition is filed by the financial

creditor, operational creditor or corporate applicant, as the case may be, the

proceedings are in personam and the only relevant stakeholders are the

applicant creditor and the corporate debtor. However, once the petition is

admitted and CIRP is initiated, several significant changes take place, including

the transfer of the management of the affairs of the corporate debtor to the IRP,

the declaration of the moratorium, and the collation of the claims against the

corporate debtor. Therefore, the proceedings now change character – they

become in rem and are no longer the preserve of only the applicant creditor and

the corporate debtor and even creditors who were not the original applicants,

become necessary stakeholders.

43. A three- judge Bench of this Court in Indus Biotech (P) Ltd. v. Kotak India

Venture (Offshore) Fund

33

adjudicated on the question of the stage at which

the proceedings under the IBC attain the status of in rem and create third-party

31

Section 21, IBC.

32

“RP”

33

(2021) 6 SCC 436.

PART D

Page 30 of 61

rights for all creditors. This Court held that the trigger point is not the filing of the

application, but the admission of the application, and observed as follows:

“17. The procedure contemplated will indicate that

before the adjudicating authority is satisfied as to

whether the default has occurred or not, in addition

to the material placed by the financial creditor, the

corporate debtor is entitled to point out that the

default has not occurred and that the debt is not due,

consequently to satisfy the adjudicating authority

that there is no default. In such exercise undertaken

by the adjudicating authority if it is found that there is

default, the process as contemplated under sub-

section (5) of Section 7 of IB Code is to be followed

as provided under sub- section (5)(a); or if there is no

default the adjudicating authority shall reject the

application as provided under sub- section (5)(b) to

Section 7 of IB Code. In that circumstance if the

finding of default is recorded and the adjudicating

authority proceeds to admit the application, the

corporate insolvency resolution process

commences as provided under sub- section (6) and

is required to be processed further. In such event,

it becomes a proceeding in rem on the date of

admission and from that point onwards the

matter would not be arbitrable. The only course

to be followed thereafter is the resolution

process under IB Code. Therefore, the trigger

point is not the filing of the application under

Section 7 of IB Code but admission of the same

on determining default.

26. […] 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.”

PART D

Page 31 of 61

44. In summary, the scheme of the IBC under Chapter II gives rise to two significant

principles:

a. Once the petition is admitted, the proceedings are no longer the preserve

of the applicant creditor and the debtor. They now become in rem and all

creditors of the corporate debtor become stakeholders in the process; and

b. Once the petition is admitted, the management of the affairs of the corporate

debtor is vested in the IRP and eventually, in the RP. Thus, the corporate

debtor no longer exists in the form that it did, before the admission of the

petition. Once CIRP is initiated, the interests of the erstwhile management

of the corporate debtor must be distinguished from the interests of the

corporate debtor.

ii. Legal framework for withdrawal and settlement of claims

a. Evolution of the legal framework

45. Introduced less than a decade ago, the IBC and the various rules and

regulations promulgated under the Act constitute a relatively nascent legal

framework. On several occasions, the legislature and the executive have

responded to the lacunae in the framework identified by this Court and sought

to fill the gaps by legislating, in the form of amendments to the IBC or

promulgating rules or regulations, if necessary. The evolution of the legal

framework in relation to the withdrawal of CIRP after the admission of an

application moved by a creditor is a classic example of this delicate

coordination.

PART D

Page 32 of 61

46. Under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016

34

, the NCLT may permit the withdrawal of applications

made by a creditor (under Sections 7, 9 or 10) o n a request by the applicant

before the admission of the application.

35

When the IBC was original ly enacted

in 2016, it did not contain any provisions, in the text of the Act or its allied rules

and regulations, for the withdrawal of CIRP after the application had been

admitted. Although there was no express provision in this regard, in several

instances, this Court invoked its powers under Article 142 of the Constitution

and permitted withdrawal of the CIRP on account of a settlement between the

creditor and the corporate debtor after the application had been admitted by the

NCLT.

36

47. In one such decision of this Court, namely, Lokhandwala Kataria

Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP,

37

a

two-judge bench of this Court invoked its power under Article 142 to record the

settlement of the parties and allow the compromise between the creditor and

the corporate debtor after the admission of the concerned application. While

doing so, this Court also prima facie agreed with the proposition that in view of

Rule 8 of the CIRP Rules, the NCLAT cannot use its inherent powers under

Rule 11 of the NCALT Rules 2016 to allow a settlement or withdrawal after the

admission of the application.

34

“CIRP Rules”

35

“8. Withdrawal of application. —The Adjudicating Authority may permit withdrawal of the application

made under rules 4, 6 or 7, as the case may be, on a request made by the applicant before its admission.”

36

Mothers Pride Dairy India Private Limited v. Portrait Advertising and Marketing Private Limited, 2017 SCC

OnLine SC 1789; Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem, (2018) 15 SCC 587.

37

(2018) 15 SCC 589.

PART D

Page 33 of 61

48. The above position was followed by the same B ench of this Court in Uttara

Foods & Feeds (P) Ltd. v. Mona Pharmachem,

38

while allowing another

settlement between the parties under Article 142. However, on this occasion,

the bench also observed that instead of all such orders coming to this Court to

utilize its powers under Article 142, the relevant rules may be amended to

account for cases where an agreement has been reached after admission of

the application. This Court observed as follows:

“2. … this Bench had observed that in view of Rule

8 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016, the National

Company Law Appellate Tribunal prima facie could

not avail of the inherent powers recognised by Rule

11 of the National Company Law Appellate Tribunal

Rules, 2016 to allow a compromise to take effect

after admission of the insolvency petition. We are of

the view that instead of all such orders coming

to the Supreme Court as only the Supreme Court

may utilise its powers under Article 142 of the

Constitution of India, the relevant Rules be

amended by the competent authority so as to

include such inherent powers. This will obviate

unnecessary appeals being filed before this

Court in matters where such agreement has

been reached. On the facts of the present case, we

take on record the settlement between the parties

and set aside the NCLT order …”

49. Against this backdrop, the Ministry of Corporate Affairs of the Government of

India set up the Insolvency Law Committee,

39

to address the early teething

challenges arising from the implementation of the IBC.

40

The ILC Report,

submitted on 26 March 2018, also dealt with the issue of withdrawal of CIRP

proceedings and discussed the existing practice of this Court of granting

38

(2018) 15 SCC 587.

39

“ILC”

40

“ILC Report”

PART D

Page 34 of 61

“judicial permission” for withdrawal of CIRP after the admission of the

application of the creditor. In this context, the report discussed the objectives of

the IBC, drawing from the report of the Bankruptcy Law Reforms Committee

which preceded the enactment of the IBC, and concluded that:

“29.1 …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.”

(emphasis supplied)

50. The ILC Report found that in several cases, a settlement may be reached

amongst “all creditors and the debtor” for withdrawal, and not only between the

individual applicant creditor and the debtor. In light of this, the ILC unanimously

agreed that the relevant rules may be amended to provide for withdrawal post-

admission if the CoC approved of such an action by a voting share of ninety per

cent. Significantly, the report states that the ILC specifically discussed and

concluded that Rule 11 of the NCLAT Rules, 2016 may not be adopted for

withdrawal of CIRP, and instead Rule 8 of the CIRP Rules may be appropriately

amended. The observations in the ILC Report on this aspect are as follows:

“29.2. On a review of the multiple NCLT and NCLAT

judgments in this regard, the consistent pattern that

emerged was that a settlement may be reached

amongst all creditors and the debtor, for the purpose

of a withdrawal to be granted, and not only the

applicant creditor and the debtor. On this basis read

with the intent of the Code, the Committee

unanimously agreed that the relevant rules may be

amended to provide for withdrawal post admission if

the CoC approves of such action by a voting share

of ninety per cent. It was specifically discussed that

PART D

Page 35 of 61

rule 11 of the National Company Law Tribunal Rules,

2016 may not be adopted for this aspect of CIRP at

this stage (as observed by the Hon’ble Supreme

Court in the case of Uttara Foods and Feeds Private

Limited v. Mona Pharmacem) and even otherwise,

as the issue can be specifically addressed by

amending rule 8 of the CIRP Rules.”

51. Accepting the recommendation of the ILC, the legislature introduced Section

12A in the IBC by the Insolvency and Bankruptcy (Second Amendment) Act,

2018 with effect from 6 June 2018.

41

. It reads as follows:

“12A. Withdrawal of application admitted under

section 7, 9 or 10. –

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 per cent. voting

share of the committee of creditors, in such manner

as may be specified. ”

(emphasis supplied)

52. The provision provides for the withdrawal of an application under Sections 7, 9

and 10 after it has been admitted, with the approval of ninety-percent voting

share of the CoC. Evidently, Section 12A was made more stringent in

comparison to Section 30(4) of the IBC, which pertains to approval of the

Resolution Plan by the CoC. Whereas under Section 30(4) of the IBC, the voting

share of the CoC for approving the Resolution Plan is sixty-six percent, the

requirement under Section 12A of the IBC for withdrawal of CIRP is ninety

percent. The reason for this divergence and high threshold appears to be rooted

in the reasoning provided in the ILC report that once an application is admitted

it is no longer a proceeding only between the applicant creditor and the

41

Act No. 26 of 2018.

PART D

Page 36 of 61

corporate debtor but is a proceeding involving all creditors of the debtor.

Significantly, the text of Section 12A only details the procedure for the

withdrawal of the application after the formation of the CoC (with ninety percent

of the voting share), but is silent about the withdrawal of an application after the

application is admitted, but before the CoC is formed.

53. With the introduction of Section 12A in the IBC, the CIRP Regulations were also

amended to include Regulation 30A which delineated the detailed procedure to

withdraw an application under Section 12A.

42

At the time of its introduction, the

regulation read as follows:

“30-A. Withdrawal of application.— (1) An

application for withdrawal under Section 12- A shall

be submitted to the interim resolution professional or

the resolution professional, as the case may be, in

Form FA of the Schedule before issue of invitation

for expression of interest under Regulation 36- A.

(2) The application in sub- regulation (1) shall be

accompanied by a bank guarantee towards

estimated cost incurred for purposes of clauses (c)

and (d) of Regulation 31 till the date of application.

(3) The committee shall consider the application

made under sub- regulation (1) within seven days of

its constitution or seven days of receipt of the

application, whichever is later.

(4) Where the application is approved by the

committee with ninety per cent voting share, the

resolution professional shall submit the application

under sub- regulation (1) to the adjudicating authority

on behalf of the applicant, within three days of such

approval.

(5) The adjudicating authority may, by order,

approve the application submitted under sub-

regulation (4).”

42

IBBI (CIRP) (Third Amendment) Regulations, 2018 vide Notification No. IBBI/2018- 19/GN/REG031, dated

3rd July, 2018, w.e.f. 04.07.2018.

PART D

Page 37 of 61

54. Regulation 30A(1), as it stood originally, required that an application for

withdrawal shall be submitted to the IRP or the RP in the prescribed form, before

the invitation for expression of interest under Regulation 30A. It did not provide

the procedure for withdrawal after the invitation of expression of interest had

been issued. Regulation 30A(2) provided that the application for withdrawal

shall be accompanied by a bank guarantee towards the specified estimated

costs. Regulation 30A(3) mandated that the CoC must consider the application

within seven days of its constitution or the receipt of the application, whichever

is later. Finally, Regulation 30A(4) provided that once the CoC approved the

application with ninety percent voting share, the RP shall submit the application

to the NCLT on behalf of the applicant, within three days of the approval. Finally,

under Regulation 30A(5), the NCLT could approve the application submitted by

an order.

55. Notably, akin to Section 12A, Regulation 30A in its original form, was silent

about withdrawal in cases where the application had been admitted, but the

CoC had not been formed. Similarly, Regulation 30A( 1) only spoke of

withdrawal before the invitation of expression of interest had been issued and

there was no provision which provided for withdrawal after it had been issued.

Both these gaps were identified in subsequent judgements of this Court .

56. In Brilliant Alloy Private Limited vs S Rajagopal and Ors

43

, a two-judge

bench of this Court observed that the requirement in Regulation 30A, as it stood

43

(2022) 2 SCC 544.

PART D

Page 38 of 61

then, that the application must be made before the issuance of an invitation for

expression of interest was only directory. The r egulation, it was held, has to be

read along with Section 12A, which does not contain any bar on withdrawal

after the issuance of an invitation for expression of interest.

57. The constitutional validity of various provisions of the IBC, including Section

12A was challenged before this Court. In Swiss Ribbons (supra), a two-judge

bench of this Court, speaking through Justice Rohinton Fali Nariman, inter alia

upheld the constitutionality of Section 12A. One of the questions that arose

before this Court, in this context, was what happens if withdrawal is sought after admission of the application, but before the CoC is constituted. This Court

observed:

“82. 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 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.

PART D

Page 39 of 61

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 do not have the last word on the

subject. If the Committee of Creditors arbitrarily

rejects a just settlement and/or withdrawal claim,

NCLT, and thereafter, NCLAT can always set

aside such decisi on under Section 60 of the

Code. For all these reasons, we are of the view that

Section 12- A also passes constitutional muster.”

(emphasis supplied)

58. From the above observations of this Court in Swiss Ribbons (supra), the

following positions of law may be deduced:

a. Once the petition instituted by a creditor is admitted, the proceedings before

the NCLT become a ‘collective proceeding’ or a proceeding in rem. Thus,

the body which oversees the resolution process, i.e. CoC must be consulted

before allowing the claim to be settled;

b. This Court recognized that there was a lacuna in relation to cases where

the CoC h ad not been formed. Accordingly, it was held that, in such cases,

the party can approach the NCLT directly, and the NCLT may exercise its

inherent powers under Rule 11 to allow or disallow the application for

settlement/withdrawal. However, given the in rem nature of the

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proceedings, such an application must be decided only after hearing all the

parties concerned and considering the relevant factors in the case;

c. This high threshold of a ninety-percent voting share of the CoC is not

arbitrary. The idea is that the financial creditors have to put their heads

together to allow such withdrawal; and

d. Under Section 60 of the IBC, the decision of the CoC to reject or accept the

settlement claim can be challenged before the NCLT and then, the NCLAT.

59. In response to the lacunae identified by this Court in Swiss Ribbons (supra)

and Brilliant Alloy Private Limited (supra), an amendment was made to

Regulation 30A of the CIRP Regulations.

44

This amendment came into effect

on 25 July 2019 and Regulation 30A in its present form reads as follows:

“30A. Withdrawal of application.

(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.

(2) The application under sub- regulation (1) shall be

made in Form FA of the Schedule- I accompanied by

a bank guarantee-

(a) towards estimated expenses incurred on or by

the interim resolution professional for purposes of

regulation 33, till the date of filing of the application

under clause (a) of sub- regulation (1); or

44

Notification No. IBBI/2019- 20/GN/REG048, dated 25th July, 2019 (w.e.f. 25- 07-2019)

PART D

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(b) towards estimated expenses incurred for

purposes of clauses (aa), (ab), (c) and (d) of

regulation 31, till the date of filing 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 Authority on behalf of the

applicant, within three days of its receipt.

(4) Where an application for withdrawal is under

clause (b) of sub- regulation (1), the committee shall

consider the application, within seven days of its

receipt.

(5) Where the application referred to in sub-

regulation (4) is approved by the committee with

ninety percent voting share, the resolution

professional shall submit such application along with

the approval of the committee, to the Adjudicating

Authority on behalf of the applicant, within three days

of such approval.

(6) The Adjudicating Authority may, by order,

approve the application submitted under sub- regulation (3) or (5).

(7) Where the application is approved under sub-

regulation (6), the applicant shall deposit an amount,

towards the actual expenses incurred for the

purposes referred to in clause (a) or clause (b) of

sub-regulation (2) till the date of approval by the

Adjudicating Authority, as determined by the interim

resolution professional or resolution professional, as

the case may be, within three days of such approval,

in the bank account of the corporate debtor, failing

which the bank guarantee received under sub-

regulation (2) shall be invoked, without prejudice to

any other action permissible against the applicant

under the Code.”

60. Regulation 30A (1) now provides for the procedure to make an application for

withdrawal before the NCLT under Section 12A, both before and after the

constitution of the CoC. Sub- clause (a) of Regulation 30A (1) states that in

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cases where the CoC has not been constituted, the applicant may place an

application for withdrawal before the NCLT, through the IRP. Similarly, sub-

clause (b) of Regulation 30A (1) states that in cases where the CoC is

constituted, the applicant may place an application for withdrawal before the

NCLT, through the IRP or the RP, as the case may be. In essence, at both

stages – before and after the constitution of the CoC – the application for

withdrawal may only be made through the person appointed to oversee the

insolvency proceedings, i.e. the IRP or the RP.

61. The proviso to Regulation 30A ( 1) provides that when the application is made

after the CoC has been constituted and after the invitation for expression of

interest has been issued, the applicant shall state the reasons for withdrawal at

this stage. In essence, the regulation in its amended form, deviates from its

earlier form by also responding to the decision of this Court in Brilliant Alloy

Private Limited (supra). Unlike the unamended regulation, the regulation

acknowledges the possibility of withdrawal even after the invitation for

expression has been issued. However, it mandates that an application for

withdrawal in such cases must be accompanied by reasons.

PART D

Page 43 of 61

62. Regulation 30A (2) provides that the application must be made in the manner

prescribed in Form FA of Schedule- I,

45

and must be accompanied by a bank

guarantee towards the specified expenses. Regulation 30A(3) provides that in

cases where the application for withdrawal is moved before the constitution of

the CoC, the IRP shall submit the application to the NCLT on behalf of the

applicant within three days of receipt. Regulations 30A (4) and (5) deal with the

situation where the CoC has already been constituted. They provide that the

CoC shall consider the application within seven days of receipt, and

subsequently, if the application is approved by the CoC with a ninety-percent

voting share, the RP must submit the application with the approval to the NCLT

within three days of the approval. Finally, regulation 30A(6) provides that on the

receipt of the application under both mechanisms (before the CoC and after),

45

PART D

Page 44 of 61

the NCLT may pass an order approving the application submitted by the RP or

IRP, as the case may be.

b. Insights from the evolution of the legal framework

63. In essence, after a series of deliberations by the legislature, the executive and

nudges by this Court, the framework created by Rule 8 of the NCLT Rules and

Section 12A of the IBC read with Rule 30A of the CIRP Regulations lays down

an exhaustive procedure for the withdrawal of an application filed by creditors

under Sections 7, 9, or 10 of the IBC. Withdrawal may be sought at four stages,

all of which have a procedure prescribed under the existing framework. These

may be summarized as follows:

i. Before the application under Sections 7, 9 or 10 is admitted by the

NCLT: Such cases are squarely covered by Rule 8 of the NCLT Rules,

which requires that the applicant approach the NCLT directly. The NCLT

may then pass an order permitting the withdrawal of the application. At this

stage, as the CIRP process has not been initiated, the proceedings are still

in personam, as between the applicant creditor and the corporate debtor.

Therefore, while approving the withdrawal at this stage, the NCLT may

restrict its enquiry to only hear the applicant creditor and corporate debtor,

and other potential creditors are not stakeholders at this stag e.

ii. After an application under Sections 7, 9, or 10 is admitted, but before

the CoC has been constituted: Although Section 12A continues to be

PART D

Page 45 of 61

silent on this aspect, after the decision in Swiss Ribbons (supra),

Regulation 30A was amended to provide for this eventuality. An application

for withdrawal in such cases may be made by the applicant through the

IRP.

46

The IRP will then place the application before the NCLT , which may

pass an order either approving or rejecting the application. As noted above,

once the application has been admitted, the proceedings are no longer the

sole preserve of the applicant creditor and the corporate debtor. They are

now in rem and at this stage, the NCLT must hear the concerned parties

and consider all relevant factors before approving or rejecting the application

for withdrawal. The NCLT being a quasi-judicial body, must not act as a

mere post office, which stamps and approves every settlement agreement,

without application of judicial mind.

iii. After an application under Section 7, 9 or 10 is admitted, the CoC has

been constituted and the invitation for expression of interest has not

been issued: Section 12A read with Regulation 30A provides exhaustively

for this scenario. In such cases, the application for withdrawal is to be placed

before the NCLT, through the IRP or the RP. The application is first placed

before the CoC and after ascertaining approval with a ninety percent voting share, the RP shall submit the application to the NCLT.

iv. After an application under Section 7, 9 or 10 is admitted, the CoC has

been formed and the invitation for expression of interest has been

46

Regulation 30A (1), CIRP Regulations, 2016.

PART D

Page 46 of 61

issued: The procedure is the same as that detailed in (iii) above, with the

added requirement stemming from the proviso to Regulation 30A (1). in such

cases, the applicant must state the reasons for withdrawal at thi s belated

stage.

64. Not only is there an exhaustive framework to deal with withdrawal and

settlement, but the evolution of the law and the creation of an comprehensive

framework indicates an attempt to reduce reliance on discretionary powers. As

detailed above, the IBC and the allied rules and regulations , in their original

form did not provide any procedure for the settlement/withdrawal of claims after

admission of the application by the creditor. This Court was compelled to invoke

Article 142 in decisions such as Lokhandwala Kataria Construction (supra)

and Uttara Foods & Feeds (P) Ltd. (supra). To reduce reliance on Article 142,

Section 12A and Regulation 30A were introduced to provide a detailed

procedure for such cases. In fact, the ILC report which led to the inclusion of

Section 12A specifically discussed and rejected the proposition that Rule 11

can instead be used for this purpose. Next, this Court in Swiss Ribbons (supra)

held that since there was no prescribed framework to allow

settlement/withdrawal of claims after admission of the application but before the

CoC was constituted, Rule 11 of the NCLT Rules may be invoked. In response

to this, to reduce reliance on the inherent powers under Rule 11 and provide

certainty, necessary amendments were made to Regulation 30A. There is now

a detailed procedure to deal with withdrawal or settlement at both stages post

admission – before and after the CoC is constituted. In view of this detailed

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framework, the requirement to invoke discretionary power such as Rule 11 of

the NCLT Rules, or Rule 11 of the NCLAT Rules or even the power of this Court

under Article 142 no longer arises.

65. Mr Tushar Mehta, Senior Counsel for the second respondent, has sought to

contend that the requirement under Regulation 30A (1) to move an application

before the NCLT through the IRP , in cases where the CoC is not constituted, is

a mere technicality which can be dispensed with. The logic he advances is that

the regulation does not require adjudication by the NCLT about the factum of

the settlement, the mode of settlement or adjudication on any other ground. His

submission is that Regulation 30A (1) only requires that the withdrawal

application be submitted to the IRP in the prescribed Form FA, which is then

forwarded to the NCLT to mechanically approve the settlement. At this stage,

according to him, the NCLT is not required to hear any other parties, but only

approve the application and thus, whether the application is submitted through

the IRP or whether it is before the NCLT or the NCLAT , is a mere technicality.

66. We do not concur with the above understanding for two broad reasons.

a. Firstly, that the application is to be submitted by the IRP rather than the

parties themselves is not a distinction without difference. As noted above,

once the application is admitted and CIRP is initiated, it is the IRP who takes

charge of the affairs of the corporate debtor. The proceedings become

collective proceedings and the interests of the former management of the

corporate debtor, become disjunct from the interest of the corporate debtor.

PART D

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Therefore, the parties (such as the former management of the corporate

debtor) must submit their application for withdrawal through the IRP who is

now the person in control of the insolvency proceedings. To subvert this

requirement would run contrary to the scheme of the IBC and the underlying

principles discussed in this judgment; and

b. Secondly, the NCLT cannot be considered a post office that merely puts a

stamp on the withdrawal application submitted by the parties through the

IRP. The ILC Report, in response to which, the parent provision, i.e. Section

12A was introduced in the IBC specifically discussed the possibility of the

creditors, apart from the applicant creditor agreeing to a settlement as the

underlying reason to permit withdrawal even after initiation of the CIRP. It

was never fathomed by the ILC that withdrawal of claims would remain a

unilateral process, even though the application is admitted and CIRP has

been initiated. Similarly, this Court in Swiss Ribbons (supra), in response

to which Regulation 30A was amended, specifically observed that in cases

where withdrawal is sought after initiation of CIRP, but before the CoC is

constituted, the NCLT must decide on the applicat ion after “hearing all the

parties concerned and considering all relevant factors on the facts of each

case.” Therefore, the NCLT does conduct an adjudicatory exercise when

the application for withdrawal is placed before it, and the procedure is not a

mere technicality.

PART D

Page 49 of 61

iii. Scope of ‘Inherent Powers’ under Rule 11

67. Section 151 of the Code of Civil Procedure

47

reads as follows:

“151. Saving of inherent powers of Court.—

Nothing in this Code shall be deemed to limit or

otherwise affect the inherent power of the Court to

make such orders as may be necessary for the ends

of justice or to prevent abuse of the process of the

Court.”

68. Rule 11 of the NCLT Rules 2016 and Rule 11 of the NCLAT Rules 2016, which

preserve the inherent powers of the NCLT and the NCLAT respectively, mirror

Section 151 of the CPC and read as follows:

“11. Inherent powers. - Nothing in these rules shall

be deemed to limit or otherwise affect the inherent

powers of the Appellate Tribunal to make such

orders or give such directions as may be necessary

for meeting the ends of justice or to prevent abuse

of the process of the Appellate Tribunal.”

69. In a consistent line of precedent, this Court has held that ‘inherent powers’ may

be exercised in cases where there is no express provision under the legal

framework. However, such powers cannot be exercised in contravention of,

conflict with or in ignorance of express provisions of law. We may helpfully refer

to the observations of a two-judge bench of this Court in one such case. In Ram

Chand and Sons Sugar Mills (P) Ltd. v. Kanhayalal Bhargava,

48

a two-judge

bench of this Cour t, speaking through Justice K Subba Rao (as the learned

chief Justice then was), opined:

“5. … Having regard to the said decisions, the scope

of the inherent power of a court under Section 151

of the Code may be defined thus: The inherent

47

“CPC”

48

1966 SCC OnLine SC 215.

PART D

Page 50 of 61

power of a court is in addition to and complementary

to the powers expressly conferred under the Code.

But that power will not be exercised if its exercise is

inconsistent with, or comes into conflict with, any of

the powers expressly or by necessary implication

conferred by the other provisions of the Code. If

there are express provisions exhaustively

covering a particular topic, they give rise to a

necessary implication that no power shall be

exercised in respect of the said topic otherwise

than in the manner prescribed by the said

provisions. Whatever limitations are imposed by

construction on the provisions of Section 151 of the

Code, they do not control the undoubted power

of the Court conferred under Section 151 of the

Code to make a suitable order to prevent the

abuse of the process of the Court.”

(emphasis supplied)

70. When a procedure has been prescribed for a particular purpose exhaustively,

no power shall be exercised otherwise than in the manner prescribed by the

said provisions. I n such cases, the court must be circumspect in invoking its

‘inherent powers’ to deviate from the prescribed procedure. If such deviation is

made, the court must justify why this was necessary to “prevent the abuse of

the process of the Court”.

71. The need to be circumspect while invoking “inherent powers”, when there is a n

exhaustive legal framework is amplified in the context of a legislation like the

IBC. In Ebix Singapore (P) Ltd. vs. Educomp Solutions Ltd. (CoC),

49

a two-

judge bench of this Court, speaking through one of us (DY Chandrachud, J),

affirmed this position and observed as follows:

“Any claim seeking an exercise of the adjudicating

authority’s residuary powers under Section 60(5)(c)

IBC, NCLT’s inherent powers under Rule 11 of the

NCLT Rules or even the powers of this Court under

49

(2022) 2 SCC 401.

PART E

Page 51 of 61

Article 142 of the Constitution must be closely

scrutinized for broader compliance with the

insolvency framework and its underlying objective.

The adjudicating mechanisms which have been

specifically created by the statute, have a narrowly

defined role in the process and must be circumspect

in granting reliefs that may run counter to the

timeliness and predictability that is central to the IBC.

Any judicial creation of a procedural or

substantive remedy that is not envisaged by the

statute would not only violate the principle of

separation of powers, but also run the risk of

altering the delicate coordination that is

designed by the IBC framework and have grave

implications on the outcome of the CIRP, the

economy of the country and the lives of the

workers and other allied parties who are

statutorily bound by the impact of a resolution or

liquidation of a Corporate Debtor.”

(emphasis supplied)

E. Application to the instant case

72. In the preceding section, we have analyzed the law with regard to (i) the

principles governing IBC relevant to contextualize the consequences of

withdrawing CIRP; (ii) the nature of the proceedings after admission of an

application by a creditor; (iii) the evolution of the legal framework for the

withdrawal of CIRP or settlement of claims; and (iv) the scope of Rule 11 of the

NCLAT Rules 2016. We will now apply the above discussion to the specific

issues before this Court in the present factual context, namely, the locus of the

appellant to institute the present proceedings and the approach of the NCLAT

in the Impugned Judgment.

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i. Locus of the appellant before this Court

73. The counsel for the respondents sought to argue that the appellant does not

have the locus to maintain the present proceedings before this Court. They

contend that in a case for settlement between the Corporate Debtor and the

second respondent, there is no scope for hearing any other creditors, such as

the appellant. We do not find merit in this submission.

74. Section 62 of the IBC governs statutory appeals to the Supreme Court from the

orders of the NCLAT. The provision reads as follows:

“62. Appeal to Supreme Court – (1) Any person

aggrieved by an order of the National Company Law

Appellate Tribunal may file an appeal to the

Supreme Court on a question of law arising out of

such order under this Code within forty-five days

from the date of receipt of such order.

(2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing

an appeal within forty-five days, allow the appeal to

be filed within a further period not exceeding fifteen

days.”

(emphasis supplied)

75. The provision stipulates that “any person” who is aggrieved by the order of the

NCLAT may file an appeal before the Supreme Court within the prescribed

limitation period. Similar language is used in Section 61 of the IBC, which

provides for appeals to NCLAT from orders of the NCLT.

50

The use of the

phrase “any person aggrieved” indicates that there is no rigid locus requirement

50

“61. Appeals and Appellate Authority.-

(1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any

person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the

National Company Law Appellate Tribunal.

[…]”

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to institute an appeal challenging an order of the NCLT, before the NCLAT or

an order of the NCLAT, before this Court. Any person who is aggrieved by the

order may institute an appeal , and nothing in the provision restricts the phrase

to only the applicant creditor and the corporate debtor. As noted above, once

the CIRP is initiated, the proceedings are no longer restricted to the individual

applicant creditor and the corporate debtor but rather become collective

proceedings (in rem), where all creditors, such as the appellant, are necessary

stakeholders. The appellant is not an unrelated party to the CIRP, but is in fact,

an entity whose claims had been verified by the IRP vide letter 19 August 2024.

The appellant who claims to be a Financial Creditor, has expressed reasonable

apprehensions about the prejudice it would face if there were roundtripping of

the funds, and the prioritization of the debts of the second respondent, an

operational creditor.

76. In any event, the appellant had moved an application before the NCLA T seeking

impleadment as a respondent and the objections of the appellant were

specifically recorded and addressed in the Impugned Judgement. Therefore,

there is no doubt that the appellant falls within the ambit of the phrase “any

person aggrieved” and has the locus standi to institute the present Civil Appeal

before this Court.

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ii. Approach of the NCLAT in the Impugned Judgement

77. The appellant contends that the NCLAT erred in invoking its inherent powers

under Rule 11 of the NCLAT Rules in the presence of a prescribed procedure

dealing with the withdrawal of CIRP. The respondent, on the other hand,

contends that at the time of executing the settlement agreement, the CoC was

not formed and in such situations, Rule 11 of the NCLAT Rules may be invoked

to allow the settlement. In view of the detailed discussion in Part D of this

judgement, we find considerable force in the submissions of the appellant on

this point.

78. In paragraph 63 of this j udgement, we identified the four stages at which a

procedure for the withdrawal of CIRP or settlement of claims is contemplated in

the existing legal framework. The situation before the NCLAT in the present

case fell within serial number (ii), that is, when the application of a creditor has

been admitted and CIRP has been initiated, however, the CoC has not been

formed. When settlement was sought by the first respondent before the NCLAT,

the Section 9 petition had been admitted and the Section 7 petition had also

been disposed of on that basis . However, admittedly, on this date, i.e. 31 July

2024, the CoC had not been constituted and the NCLAT subsequently stayed

the formation of the CoC.

79. In such cases, the legal framework mandates that an (i) application for

withdrawal be moved; (ii) the application has to be moved through the IRP; and

(iii) it be placed before the NCLT for approval. None of these requirements were

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met in the present case. First and foremost, there was no formal application

instituted to seek the withdrawal of the CIRP. The settlement agreement was

taken on record and approved by the NCLAT based on the submissions and

assurances of the counsel before it and the affidavits/undertakings filed by the

parties. Further, the first respondent, who is a former director of the Corporate

Debtor, did not move the application through the IRP and instead approached

the NCLAT directly. Finally, the request to approve the settlement was moved

before the NCLAT during appellate proceedings, instead of being placed before

the NCLT. Despite these grave deviations, the NCLAT still proceeded with

approving the settlement and setting aside the CIRP by invoking its inherent

power under Rule 11 of the NCLAT Rules.

80. We are of the view that recourse to Rule 11 of the NCLAT Rules was not

warranted in the present circumstances. As noted above, ‘inherent powers’ cannot be used to subvert legal provisions, which exhaustively provide for a

procedure. To permit the NCLAT to circumvent this detailed procedure by

invoking its inherent powers under Rule 11 would run contrary to the carefully

crafted procedure for withdrawal. In the Impugned Judgement, the NCLAT does

not provide any reasons for deviating from this procedure or the urgency to

approve the settlement without following the procedure. The correct course of

action by the NCLAT would have been to stay the constitution of the CoC and

direct the parties to follow the course of action in Section 12A read with

Regulation 30A of the CIRP Regulations 2016. This legal framework for such

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withdrawal was formulated after giving due consideration to the appropriate

procedure for withdrawal and balancing it with the objectives of the IBC.

81. Even if the procedural infirmity is kept aside, once the CIRP was admitted, the

proceedings became collective, and all creditors of the Corporate Debtor

became stakeholders. As noted in Swiss Ribbons (supra), even while invoking

Rule 11 to allow withdrawal, the NCLT must hear all the concerned parties and

consider all relevant factors on the facts of each case. The appellant raised

detailed objections before the NCLAT to the source of the funds for the

settlement and a reasonable apprehension that there was round tripping of

funds, in violation of the order passed by the Delaware Court on 18 March 2024.

These objections were summarily dismissed by the NCLAT, relying solely on

the undertaking filed by Riju Raveendran. The only finding in this regard is found

in paragraph 44. The NCLAT relies entirely on the undertaking filed by Riju

Raveendran and states that “although, the Applicant is not satisfied about the

undertaking but the Applicant has also not brought on record any evidence to

the contrary that the money which is being offered has actually been brought

by Riju Raveendran from the money disbursed to the borrower in terms of credit

agreement or has been taken out of the coffers of the CD.” Alleged facts such

as the fraudulent transfer of USD 533 million to a hedge fund in the United

States; the orders of the US Court restraining the brothers from transferring or

dissipating the amount; the contempt proceedings against Mr Riju Raveendran;

the ongoing investigation by the Enforcement Directorate against the first

respondent and the Corporate Debtor; and other attempts by the Corporate

Debtor to dissipate assets, were not adequately addressed by the NCLAT.

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iii. Decisions of this Court cited in the Impugned Judgement

82. The respondents relied on the decisions of this Court in Ashok G. Rajani v.

Beacon Trusteeship Ltd.

51

, and Abhishek Kumar (supra) to argue that before

the CoC is formed, the proceedings are between the applicant creditor and the

debtor and thus, Rule 11 can be invoked to allow the settlement. In the

Impugned Judgement too, the NCLAT relies on the decisions of this Court in

Abhishek Kumar (supra) and Kamal K Singh (supra), to justify the invocation

of Rule 11 of the NCLAT Rules and observe that there has been “a change in

the law on settlement”. The respondents are correct to contend that each of

these decisions was rendered after Section 12A was inserted and Regulation

30A was amended. However, it is important to understand the context in which

this Court upheld the invocation of Rule 11 of the NCLAT Rules and whether

these decisions considered the prescribed procedure under Section 12A and

the amended Regulation 30A. We are of the considered view that these

judgements do not advance the case of the respondents.

83. In Kamal Singh (supra), a two-judge bench of this Court passed a brief order

setting aside an order of the NCLT, which dismissed an application filed under

Rule 11 of the NCLT Rules 2016 for withdrawal of CIRP based on a settlement

arrived at before the constitution of the CoC. This Court relied on the

observations in para 82 of Swiss Ribbons (supra) referred to above, wherein

this Court stated that at the stage when the CoC has not been constituted, the

51

2022 SCC OnLine SC 1275.

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NCLT may exercise its inherent powers under Rule 11 to allow or disallow an

application for withdrawal or settlement. It may be noted that there is no

reference in this order to the prescribed procedure under Section 12A read with

Regulation 30A, although the proceedings took place well after their insertion.

As noted above, in response to the decision of this Court in Swiss Ribbons

(supra), there was a change in the legal framework and Regulation 30A was

amended to specifically provide for a procedure for withdrawal before the CoC

is constituted. The intention was to account for the lacuna identified in Swiss

Ribbons (supra) and at the same time, reduce the reliance on ‘inherent powers’

by prescribing a procedure for withdrawal at this stage. In our view, as the order

overlooks the relevant legal provisions and fails to even refer to the existing

legal framework under Regulation 30A, it would be per incuriam and is not

binding on this Court.

84. The same infirmity is found in Ashok G. Rajani (supra), a judgement rendered

by a two -judge bench of this Court. In this case, too, the petition filed by a

creditor against a corporate debtor had been admitted, but the CoC had not

been constituted. The decision refers to Section 12A of the IBC but fails to even

acknowledge the amendment to Regulation 30A, which specifically provided for

such an eventuality. Instead, this Court proceeded to hold while Section 12A of

the IBC permits withdrawal after admission of the application by the creditor, it

only provides for the procedure for withdrawal after the CoC has been

constituted, without laying down a bar on withdrawal before the constitution of

the CoC. According to the two- judge bench, the question of approval of the CoC

by the requisite percentage of votes can only arise after the CoC is constituted

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Page 59 of 61

and thus, Rule 11 must be invoked to allow withdrawal. This observation was

made without as much as a passing reference to Regulation 30A, which

specifically governs such a situation.

85. The decision of this Court in Abhishek Kumar (supra) rendered by a two- judge

bench of this Court speaking through Justice Vikram Nath, correctly identifies

the legal framework. However, it is distinguishable from the present factual

situation and the findings of this Court do not support the case of the

respondents. The facts are comparable vis-à-vis the stage of the proceedings

– the petition had been admitted, but the CoC had not been constituted.

However, in that case, the IRP had moved an application under Regulation 30A

of the CIRP Regulations. Instead of adjudicating upon the application under

Regulation 30A, the NCLT took the view that Regulation 30A is a mere directory

provision and dismissed the application. The NCLT vacated the stay on the

constitution of the CoC and directed that the application under 12A be decided

directly (i.e. including for compliance with the requirement of a ninety-percent

voting share of the CoC). This Court set aside the order of the NCLT on the

ground that Regulation 30A provides a complete mechanism for dealing with

the applications filed under such a provision, and it is not necessary to get the

approval of a ninety percent voting share of the CoC if the application for

withdrawal is moved before the constitution of the CoC. On the other hand, in

the present case, there was no application filed through the IRP before the

NCLT under Regulation 30A at all. Therefore, this decision is not applicable to

the present case.

PART F

Page 60 of 61

F. Conclusion

86. For the above reasons, we allow the present appeal and set aside the impugned

judgment of the NCLAT dated 2 August 2024 in the above terms. At this stage,

it would not be appropriate for this Court to adjudicate on the objections of the

appellant to the settlement agreement on merits. The issues raised are the

subject matter of several litigations in different fora, including the Delaware

Court and investigation by various authorities, including the Enforcement

Directorate, which are pending.

87. During the course of the proceedings before this Court, the CoC has been

constituted. The parties are at liberty to invoke their remedies, to seek a

withdrawal or settlement of claims, in compliance with the legal framework

governing the withdrawal of CIRP. Nothing in this judgment should be construed

as a finding on the conduct of any of the parties or other stakeholders involved

in the insolvency proceedings.

88. The amount of Rs 158 crore, along with accrued interest, if any, which has been

maintained in a separate escrow account pursuant to the Order of this Court

dated 14 August 2024, is to be deposited with the CoC. The CoC is directed to

maintain this amount in an escrow account until further developments and to

abide by the further directions of the NCLT.

89. The civil appeal and special leave petition shall stand disposed of accordingly.

PART F

Page 61 of 61

90. Pending applications, if any, stand disposed of.

..….…….……………………………………CJI

[Dr Dhananjaya Y Chandrachud]

…….……………………………………………J

[J B Pardiwala]

…….……………………………………………J

[Manoj Misra]

New Delhi;

October 23, 2024.