Supreme Court Rules Pre-CoC Application for CIRP Withdrawal Valid!

The Abhishek Singh v. Huhtamaki Ppl Ltd. & Anr. case, with the citation CIVIL APPEAL NO(s). 2241 OF 2023, has been a noteworthy legal battle involving Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC), and Regulation 30A of the Insolvency and Bankruptcy Board of India’s 2018 Regulations on the Insolvency Resolution Process for Corporate Persons. The Supreme Court has made it clear in this case that Section 12A does not preclude the acceptance of applications for withdrawal even before the formation of the Committee of Creditors (CoC), and such applications cannot be kept pending until the CoC is constituted. Furthermore, the National Company Law Tribunal (NCLT) is bound by Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018.

The case involved Manpasand Beverages Ltd., a company that was facing a petition under Section 9 of the IBC by Huhtamaki PPL Ltd. for failing to pay Rs. 1,31,00,825. The NCLT accepted the petition and initiated the Corporate Insolvency Resolution Process (CIRP) against the company. During this period, Manpasand Beverages Ltd. had filed an appeal with the National Company Law Appellate Tribunal (NCLAT) against the NCLT’s order, but the appeal was withdrawn with the option to revive it if the settlement failed. The NCLAT also stayed the formation of the CoC until the NCLT decided on the application under Section 12A of the IBC.

On April 13th, 2021, the NCLT rejected the settlement application under Section 12A of the IBC and scheduled a hearing to consider the application under Regulation 30A after hearing from all creditors. The NCLT had noted that 35 creditors had filed their claims during the pendency of the application, and the withdrawal of the proceedings would negatively impact their rights. However, the Supreme Court later ruled that Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, which allows for withdrawal of CIRP under Section 12A of IBC before the constitution of CoC, is binding on the NCLT.

The Supreme Court has held that NCLT is bound by Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, which allows for withdrawal of CIRP under Section 12A of IBC before the constitution of CoC. The court referred to its previous judgment in Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, which stated that NCLT may use its inherent powers under Rule 11 of NCLT Rules, 2016, to allow or disallow applications for withdrawal or settlement before the constitution of CoC. The court noted that the IBBI was empowered to make regulations for various purposes under Section 240 of IBC and that such regulations, though subordinate, would still have a statutory nature and be binding on NCLT.

This ruling has clarified the ambiguity surrounding the interpretation of the provisions and provided a comprehensive framework for dealing with such cases. The Supreme Court has emphasized that the IBBI has the power to create regulations where necessary, and Regulation 30A allowed for withdrawal applications to be considered before the CoC is formed, which supported the purpose of Section 12A of the IBC.

Furthermore, the Supreme Court has highlighted that the delay in disposing of applications under Section 12A of the IBC and Regulation