The Supreme Court has recently passed an order allowing the withdrawal of a case which was under corporate insolvency resolution process (CIRP), even after invitation fo expression of interest (EOI) was published.
Section 12A was added to the Insolvency and Bankruptcy Code in June 2018 by the way of an Ordinance. This provision was included based on the deliberations of the Insolvency Law Committee, which noted that there were several cases where parties approached the Supreme Court for ending the CIRP prematurely, due to a settlement. Section 12A (as it eventually came to be drafted in the Amendment Act) provides that the NCLT may allow withdrawal of a case that has entered into CIRP, if 90% of the creditors have voted for it, and ‘in such manner as may be specified‘. Accordingly the Insolvency and Bankruptcy Board of India (IBBI) amended the IBBI (CIRP) Regulations to add Regulation 30A which allows withdrawal only before an inviation for EOI has been issued.
In this backdrop, the Supreme Court was hearing a Special Leave Petition filed by Brilliant Alloys Private Limited against an NCLT order, which did not allow withdrawal of the CIRP, since the EOI had already been issued. The Supreme Court observed Regulation 30A of the IBBI CIRP Regulations and noted that,
“According to us, this Regulation has to be read along with the main provision Section 12A which contains no such stipulation.“
While the Supreme Court has also noted that, “this stipulation can only be construed as directory depending on the facts of each case“, it has indirectly found Regulation 30A to be of no significance, for disposing withdrawal applications. The Supreme Court ruling, however, shies away from expressly striking down Regulation 30A. This ruling could is also relevant for the Essar case, where promoters have offered to pay the entire defaulted amount. If this ruling is one that can be read as striking down Regulation 30A of the CIRP Regulations, Essar Steel would be in a position to approach the Supreme Court for withdrawal of its CIRP, provided it attains 90% majority vote from the financial creditors.
The principal bench of the NCLT had previously also passed an order striking down Regulation 36A of the CIRP Regulations (Su-Kam Power Systems), holding that Regulation 36A is ultra vires the IBC. This order was appealed by the IBBI at the Delhi High Court, and the NCLT order has been temporarily set aside.
In addition to the previous challenge made to the EOI process, the recent Supreme Court reopens the pertinent question of IBBI’s power to have issued such directions in the first place.
The author would like to thank Zacarias Kanjirath Joseph for his inputs.
Last edited on January 9 at 8:00am
(Read the order)
