ASHOK G. RAJANIversusBEACON TRUSTEESHIP LTD. & ORS

                         [2022] 18 S.C.R. 133                           133


                       ASHOK G. RAJANI                                  A
                                 v.
             BEACON TRUSTEESHIP LTD. & ORS.
                  (Civil Appeal No. 4911 of 2021)
                      SEPTEMBER 22, 2022                                B
    [INDIRA BANERJEE AND J.K. MAHESHWARI JJ.]
       Insolvency and Bankruptcy Code, 2016 - Ss. 7, 12A, 62 –
Arbitration proceedings between corporate debtor and respondent
no. 1 to 3 were pending – Respondent nos.1 to 3 filed application
                                                                        C
u/s.7 of IBC before the NCLT – Arbitrator passed award directing
corporate debtor to make payment – Parties arrived at a settlement
– NCLAT considering settlement granted interim stay of publication
u/s. 13 of the IBC – Parties filed application u/s. 12A of IBC before
the NCLT with the consent of IRP and the same was pending –
However, NCLAT staying the formation of CoC, permitted the IRP          D
to issue publication and also to handover all assets and proceed
with CIRP even though matter was settled between the parties – On
appeal, held: Section 12A of the IBC clearly permits withdrawal of
an application u/s. 7 of the IBC that has been admitted on an
application made by the applicant – Before the Committee of
                                                                        E
Creditors is constituted, there is no bar to withdrawal by the
applicant of an application admitted u/s. 7 of the IBC – Settlement
cannot be stifled before the constitution of the CoC in anticipation
of claims against the corporate debtor from third persons – There is
no reason why the applicant for CIRP, should not be allowed to
withdraw its application once disputes have been settled – NCLT         F
directed to take up the settlement application.
      Dismissing the appeal, the Court
       HELD: 1. Section 12A of the IBC clearly permits withdrawal
of an application under Section 7 of the IBC that has been admitted
on an application made by the applicant. The question of approval       G
of the Committee of Creditors by the requisite percentage of
votes, can only arise after the Committee of Creditors is
constituted. Before the Committee of Creditors is constituted,

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134           SUPREME COURT REPORTS                    [2022] 18 S.C.R.


A     there is no bar to withdrawal by the applicant of an application
      admitted under Section 7 of the IBC. [Para 24][139-D-E]
            2. The object of the IBC is to consolidate and amend the
      laws relating to reorganisation and insolvency resolution of
      corporate persons, partnership firms and individuals in a time
B     bound manner for maximisation of value of assets of such persons,
      to promote entrepreneurship, availability of credit and balance
      of interests of all stakeholders including alteration in the order
      of priority of payment of Government dues and to establish an
      Insolvency and Bankruptcy Board of India and matters connected
      therewith or thereto. An effective legal framework for timely
C     resolution of insolvency and bankruptcy would support
      development of credit markets, encourage entrepreneurship,
      improve business and facilitate more investments leading to
      higher economic growth and development. [Para 26 & 27]
      [139-H; 140-A-C]
D           3. A reading of the statement of objects and reasons with
      the statutory Rule 11 of the NCLT Rules enables the NCLT to
      pass orders for the ends of justice including order permitting an
      applicant for CIRP to withdraw its application and to enable a
      corporate body to carry on business with ease, free of any
E     impediment. Considering the investments made by the Corporate
      Debtor and considering the number of people dependant on the
      Corporate Debtor for their survival and livelihood, there is no
      reason why the applicant for the CIRP, should not be allowed to
      withdraw its application once its disputes have been settled.
      [Para 28 & 29][140-C-E]
F
            4. The settlement cannot be stifled before the constitution
      of the Committee of Creditors in anticipation of claims against
      the Corporate Debtor from third persons. The withdrawal of an
      application for CIRP by the applicant would not prevent any other
      financial creditor from taking recourse to a proceeding under
G     IBC. The urgency to abide by the timelines for completion of the
      resolution process is not a reason to stifle the settlement.
      [Para 30][140-E-F]



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 ASHOK G. RAJANI v. BEACON TRUSTEESHIP LTD. & ORS.                        135


       5. The application for settlement under Section 12A of the         A
IBC is pending before the Adjudicating Authority (NCLT). The
NCLAT has stayed the constitution of the Committee of Creditors.
The order impugned is only an interim order which does not call
for interference. In an appeal under Section 62 of the IBC, there
is no question of law which requires determination by this Court.
                                                                          B
The appeal is, accordingly, dismissed. The NCLT is directed to
take up the settlement application and decide the same in the
light of the observations made above. [Para 32][142-B-C]
      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4911
of 2021.
                                                                          C
    From the Judgment and Order dated 18.08.2021 of the National
Company Law Appellate Tribunal, Principal Bench at New Delhi in
Company Appeal (AT) (Ins) No.598 of 2021.
       Mukul Rohtagi, Huzefa Ahmadi, Sr. Advs., Abhijeet Sinha, Puneet
Jain, Harsh Jain, Harshit Khanduja, Ms. Yashika Sharma, Ms. Christi       D
Jain, Ravi Raghunath, Ms. Rathina Maravarman, Ms. Aakashi Lodha,
Sanyat Lodha, Mahesh Agarwal, Himanshu Satija, Divyang Chandiramani,
Ms. Komal Khushalani, Shadab S. Jan, Ms. Prerana Wagh, Yash Tembe,
E. C. Agrawala, Advs. for the appearing parties.
      The Judgment of the Court was delivered by                          E
      INDIRA BANERJEE, J.
      This Appeal under Section 62 of the Insolvency and Bankruptcy
Code, 2016 (IBC) is against an interim order dated 18th August 2021
passed by the National Company Law Appellate Tribunal (NCLAT),
Principal Bench at New Delhi in Company Appeal (AT) (Insolvency)          F
No. 598 of 2021, filed by the Appellant, whereby the NCLAT issued
notice of the Appeal, but did not restrain the Interim Resolution
Professional (IRP) from proceeding with Corporate Insolvency Resolution
Process (CIRP) of M/s Seya Industries Limited (hereinafter referred to
as “Corporate Debtor”). The NCLAT, however, restrained the IRP            G
from constituting a Committee of Creditors (CoC) till the next date of
hearing. In the meanwhile, the Appellant and the Respondents were
given the opportunity to settle their disputes before the Adjudicating
Authority (NCLT) in terms of Section 12A of the IBC read with Rule 11

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136             SUPREME COURT REPORTS                         [2022] 18 S.C.R.


A     of the National Company Law Tribunal Rules, 2016 (NCLT Rules). The
      appeal was directed to be listed for hearing on 13th September 2021.
             2. The Appellant is an erstwhile Director of Respondent No. 4,
      that is the Corporate Debtor. The Corporate Debtor, a company
      incorporated under the Companies Act, 1956 has been carrying on
B     business, inter alia, of manufacture of benzene based Speciality
      Chemicals since 1990. It is stated that the Corporate Debtor had invested
      about Rs.400 Crores in its existing manufacturing facilities and had further
      invested about Rs.900 Crores in an integrated Greenfield Mega Project
      for Speciality Chemicals.
C            3. According to the Appellant, the Corporate Debtor is the source
      of livelihood for about 150 workmen, 40 unskilled workers and 75
      employees on its payroll and is engaged with more than 200 Customers/
      Vendors. It is claimed that the Corporate Debtor has a net worth of Rs.
      972 Crores and fixed assets worth more than Rs.1500 Crores.

D            4. In order to expand its chemical manufacturing plant at Tarapur,
      Palghar (Maharashtra), the Corporate Debtor raised capital and the
      Respondent No.1 - M/s Beacon Trusteeship Limited (hereinafter referred
      to as “Beacon Trusteeship”) committed to invest Rs. 100 Crores in the
      said integrated Greenfield Mega Project, in the form of Rs.20 Crores,
      towards Compulsorily Convertible Preference Shares (CCPS) and Rs.
E     80 Crores, by way of Non-Convertible Debentures (NCDs). Thereafter
      the Appellant, the Corporate Debtor and Respondent-Beacon Trusteeship
      executed a Debenture Trust Deed (DTD), inter-alia, recording the
      terms and conditions of the issue of said NCDs. The Respondent No. 1
      was appointed, the Debenture Trustee as recorded in the DTD. The
F     DTD laid down the obligations of the Corporate Debtor towards the
      NCDs.
            5. On or about 11th March 2019, Beacon Trusteeship released a
      sum of Rs.72,00,00,000/- (INR Seventy Two Crores) toward subscriptions
      of 360 Series A debentures and 360 Series B Debentures (“First tranche
G     Debentures”). The aforesaid amount was to be invested in capacity
      expansion of the company and hence not available as cashflow. The
      service of interest for the first tranche had to be met out of the second
      tranche of Rs. 8 Crores to be invested by the Beacon Trusteeship which
      would have created the cash flow for the same and the remaining amount

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 ASHOK G. RAJANI v. BEACON TRUSTEESHIP LTD. & ORS.                           137
               [INDIRA BANERJEE, J.]

was to be invested for Capex investment. Beacon Trusteeship, however,        A
defaulted in making payment of the second tranche of Rs. 8 Crores.
       6. In addition to the DTD dated 8th March 2019, the parties entered
into a Supplemental Deed dated 14th March 2019 revising certain terms
set out in DTD including the timelines and schedule for the Interest
Payment Dates.                                                               B
               st
       7. On 31 May 2019, the Corporate Debtor sent an email to the
Respondent Nos. 1 to 3, requesting payment of the second tranche of
Rs.8 Crores in terms of the DTD. The Corporate Debtor also issued
notice to the Respondent Nos.1 to 3 to make payment of second tranche
of Rs. 8 Crores.                                                             C
               th
       8. On 12 September 2019, the Corporate Debtor took recourse
to Arbitration Proceedings against the other Respondents. Beacon
Trusteeship issued a notice to the Corporate Debtor regarding non-
payment of interest amount of Rs.2,18,95,890.41/-. Beacon Trusteeship
also issued an Enforcement Notice accelerating payment of the full           D
investment amount i.e. Rs.77,94,92,513/- as due on 17th October 2019
on account of non-payment of Rs.2,18,95,890.41/- being interest coupon
amount.
      9. On 18th October 2019, the Respondent Nos. 1 to 3 invoked
Clause 6.1 of the share pledge agreement and transferred 26.60 lakh          E
shares worth Rs 91.78 Crores into the DEMAT Account(s) of the
Respondents.
      10. Between 18th-20th October 2019, the Corporate Debtor initiated
Arbitration Proceedings before the High Court of Bombay. While the
Arbitral Proceedings, to which the Respondent Nos. 1 to 3 had themselves     F
agreed and consented to, were pending, they filed an application under
Section 7 of the IBC before the National Company Law Tribunal
(NCLT), Mumbai Bench.
       11. On 15th January 2020, the Corporate Debtor filed its statement
of claim seeking an award aggregating to Rs.848,75,30,000/- for losses
                                                                             G
and damages suffered by it.
      12. On 26th February 2020, the Respondents filed statement of
defence and counter claim seeking an award for payment of its claim
amounting to Rs.73,56,59,238/-.
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138             SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A            13. On 24th March 2021, the Arbitrator passed an interim award
      in favour of Beacon Trusteeship and other Respondents and directed
      the Corporate Debtor to make payment of Rs.72,06,99,244/- along with
      interest.
             14. On 21st April 2021, being aggrieved by the order of the
B     Arbitrator, the Appellant and Corporate Debtor preferred an arbitration
      petition under Section 34 of the Arbitration and Conciliation Act, 1996
      before the High Court of Bombay which is still pending.
             15. The NCLT, Mumbai Bench heard the matter and reserved its
      order on 13th May 2021. On 1st July 2021, the Corporate Debtor and the
C     Respondents Nos. 1 to 3 filed a joint application before the NCLT, Mumbai
      Bench requesting to defer the order as the parties were in the process
      of arriving at a settlement and sought time till 10th July 2021.
            16. On 12th July 2021, the Corporate Debtor and the Respondents
      Nos. 1 to 3 again filed a joint application before the NCLT, Mumbai
D     Bench seeking further time till 23rd July 2021 for arriving at a settlement.
      Thereafter, on 26th July 2021, they again sought time for settlement till
      12th August 2021.
             17. On 3rd August 2021, the NCLT, Mumbai Bench, rejected the
      request of the parties for further deferment of orders for arriving at a
E     settlement and admitted and allowed the application under Section 7 of
      the IBC preferred by Respondent Nos. 1 to 3 against Corporate Debtor.
              18. Being aggrieved by the order dated 3rd August 2021 passed
      by the NCLT, Mumbai Bench, admitting and allowing application for
      initiating CIRP against the Corporate Debtor, the Appellant who is
F     Director of the Corporate Debtor filed an appeal being Company Appeal
      (AT)(Insolvency) No. 598 of 2022 in the NCLAT, New Delhi.
             19. On 8th August 2021, the parties had amicably settled their
      disputes and entered into a formal settlement, a copy of which is annexed
      to the paper book as annexure A-25.
G           20. On 10th August 2021, the NCLAT considering the settlement
      arrived at between the parties, granted interim stay of publication under
      Section 13 of the IBC and further gave liberty to the parties to adopt
      procedure under Section 12A of IBC.


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 ASHOK G. RAJANI v. BEACON TRUSTEESHIP LTD. & ORS.                           139
               [INDIRA BANERJEE, J.]

       21. On 12th August 2021, the parties with the consent of the IRP      A
filed an application under Section 12A of the IBC before the NCLT,
Mumbai. However, the same has not been listed till date.
       22. On 18th August 2021, the NCLAT stayed the formation of
CoC, but declined to exercise its power under Rule 11 of the NCLAT
Rules to take on record the settlement and dispose of the matter. Further,   B
the NCLAT permitted the IRP to issue publication and also handover all
assets and proceed with the CIRP even though the matter had been
settled between the parties. Being dissatisfied by the order dated 18th
August 2021 of the NCLAT, the Appellant has preferred the present
Civil Appeal.
                                                                             C
       23. Section 12A of the IBC enables the Adjudicating Authority to
allow the withdrawal of an application admitted under Section 7 or Section
9 or Section 10, on an application made by the applicant with the approval
of 90% voting shares of the Committee of Creditors in such a manner
as may be specified.
                                                                             D
       24. Section 12A of the IBC clearly permits withdrawal of an
application under Section 7 of the IBC that has been admitted on an
application made by the applicant. The question of approval of the
Committee of Creditors by the requisite percentage of votes, can only
arise after the Committee of Creditors is constituted. Before the
Committee of Creditors is constituted, there is, in our view, no bar to      E
withdrawal by the applicant of an application admitted under Section 7
of the IBC.
    25. In exercise of power conferred by Section 469 of the
Companies Act, 2013, the Central Government has made the National
Company Law Tribunal Rules, 2016, hereinafter, referred to as the            F
“NCLT Rules”. Rule 11 of the NCLT Rules reads as :-
          “11. Inherent Powers.- Nothing in these rules shall be
          deemed to limit or otherwise affect the inherent powers of
          the Tribunal to make such orders as may be necessary for
          meeting the ends of justice or to prevent abuse of the             G
          process of the Tribunal.”
      26. As stated in its statement of objects and reasons, the object of
the IBC is to consolidate and amend the laws relating to re-organisation
and insolvency resolution of corporate persons, partnership firms and
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140            SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A     individuals in a time bound manner for maximisation of value of assets
      of such persons, to promote entrepreneurship, availability of credit and
      balance of interests of all stakeholders including alteration in the order
      of priority of payment of Government dues and to establish an Insolvency
      and Bankruptcy Board of India and matters connected therewith or
      thereto.
B
            27. The statement says that an effective legal framework for
      timely resolution of insolvency and bankruptcy would support
      development of credit markets, encourage entrepreneurship, improve
      business and facilitate more investments leading to higher economic
      growth and development.
C
             28. A reading of the statement of objects and reasons with the
      statutory Rule 11 of the NCLT Rules enables the NCLT to pass orders
      for the ends of justice including order permitting an applicant for CIRP
      to withdraw its application and to enable a corporate body to carry on
      business with ease, free of any impediment.
D
             29. Considering the investments made by the Corporate Debtor
      and considering the number of people dependant on the Corporate Debtor
      for their survival and livelihood, there is no reason why the applicant for
      the CIRP, should not be allowed to withdraw its application once its
      disputes have been settled.
E
              30. The settlement cannot be stifled before the constitution of the
      Committee of Creditors in anticipation of claims against the Corporate
      Debtor from third persons. The withdrawal of an application for CIRP
      by the applicant would not prevent any other financial creditor from
      taking recourse to a proceeding under IBC. The urgency to abide by
F     the timelines for completion of the resolution process is not a reason to
      stifle the settlement.
             31. Mr. Mukul Rohtagi, learned Senior Counsel appearing on behalf
      of the Appellant drew our attention to an order dated 25th August 2021,
      passed by a Bench of coordinate strength comprising S. Abdul Nazeer
G     and Krishna Murari, J.J. in Civil Appeal No. 4993 of 2021, the relevant
      part whereof is extracted hereinbelow:
                “(3) We have heard learned counsel for the parties. It is
                not in dispute that CoC has not been constituted so far.
                This Court in Swiss Ribbons Private Limited and Anr. v.
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ASHOK G. RAJANI v. BEACON TRUSTEESHIP LTD. & ORS.                    141
              [INDIRA BANERJEE, J.]

     Union of India and others- (2019) 4 SCC 17 has held that        A
     at any stage, before a Committee of Creditors is constituted,
     a party can approach National Company Law Tribunal
     (NCLT) directly and that the Tribunal may, in exercise of
     its inherent powers under Rule 11 of NCLT Rules, allow or
     disallow an application for withdrawal or settlement. It
                                                                     B
     was held thus:
        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     C
        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      D
        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       E
        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.”                                                       F
                                             (emphasis supplied)
     (4) In the instant case, as noticed earlier, the applicant-
     respondent no.1 had made an application before the NCLT,
     Mumbai Bench, under Rule 11 of the NCLT Rules for
     withdrawal of company petition filed under Section 9 of         G
     the Insolvency and Bankruptcy Code, 2016 (IBC) on the
     ground that the matter has been settled between the
     Corporate debtor and the applicant-respondent no.1.

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142              SUPREME COURT REPORTS                      [2022] 18 S.C.R.


A                (5) Having heard learned counsel for the parties and
                 having regard to the facts and circumstances of the case,
                 we are of the view that the applicant-respondent no.1 was
                 justified in filing the application under Rule 11 of the NCLT
                 Rules for withdrawal of the company petition on the ground
                 that the matter has been settled between the parties.”
B
             32. The application for settlement under Section 12A of the IBC
      is pending before the Adjudicating Authority (NCLT). The NCLAT has
      stayed the constitution of the Committee of Creditors. The order impugned
      is only an interim order which does not call for interference. In an
      appeal under Section 62 of the IBC, there is no question of law which
C     requires determination by this Court. The appeal is, accordingly,
      dismissed. The NCLT is directed to take up the settlement application
      and decide the same in the light of the observations made above.

      Ankit Gyan and Anurag Bhaskar                             Appeal dismissed.
D     (Assisted by : Rahul Kumar, LCRA)




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