GLAS Trust Company LLC v. BYJU Raveendran & Ors.

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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.

i. Locus of the appellant before this Court

73Copy pinpoint73. 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.

74Copy pinpoint74. 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)

75Copy pinpoint75. 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”

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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indicates that there is no rigid locus requirement 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.

76Copy pinpoint76. In any event, the appellant had moved an application before the NCLAT 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.

ii. Approach of the NCLAT in the Impugned Judgement

77Copy pinpoint77. 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.

78Copy pinpoint78. In paragraph 63 of this judgement, 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

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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.

79Copy pinpoint79. 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 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.

80Copy pinpoint80. 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 withdrawal was formulated after giving due consideration to the appropriate procedure for withdrawal and balancing it with the objectives of the IBC.

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81Copy pinpoint81. 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.

iii. Decisions of this Court cited in the Impugned Judgement

82Copy pinpoint82. 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

51 2022 SCC OnLine SC 1275

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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.

83Copy pinpoint83. 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 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.

84Copy pinpoint84. 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

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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 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.

85Copy pinpoint85. 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.

F. Conclusion

86Copy pinpoint86. 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.

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87Copy pinpoint87. 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.

88Copy pinpoint88. 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.

89Copy pinpoint89. The civil appeal and special leave petition shall stand disposed of accordingly.

90Copy pinpoint90. Pending applications, if any, stand disposed of.

Result of the case: C ivil appeal and special leave petition disposed of.

† Headnotes prepared by: Divya Pandey