NCLT Rules – Rule 8 – IBC – Section 12 -CIRP Regulations – Rule 30A – Procedure for the withdrawal of an application filed by creditors under Sections 7, 9, or 10 of the IBC- 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 stage- After an application under Sections 7, 9, or 10 is admitted, but before the CoC has been constituted: Although Section 12A continues to be 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 – 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- 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 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 this belated stage. (Para 63)
Insolvency and Bankruptcy Code 2016 -Sections 7, 9 or 10 – Nature of the proceedings after admission of the application – 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. (Para 44)
NCLT Rules 2016 – Rule 11- NCLAT Rules 2016 – Rule 11- ‘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- 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. In 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”. (Para 67-71)