In its landmark decision, the Hon’ble Supreme Court of India, revisited the aspect of invocation of the inherent powers of the Hon’ble National Company Law Appellate Tribunal under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016. The Hon’ble Supreme Court disapproved a settlement without having followed the prescribed procedure for withdrawal of the corporate insolvency resolution process and settlement of claims between the parties. Holding that the Hon’ble NCLAT had erred in exercising its inherent powers to approve the settlement in the instant case, the Hon’ble Supreme Court set aside the decision that had closed the insolvency process against Byju’s following a settlement with the Board of Control for Cricket in India.

 

The case (2024 SCC OnLine SC 3032) involves a civil appeal preferred by the U.S. based financial creditor Glas Trust Company LLC (Glas Trust) against the judgment of the Hon’ble National Company Law Appellate Tribunal (NCLAT) dated August 02, 2024, by way of which the NCLAT had approved a settlement between Think and Learn Pvt Ltd (Corporate Debtor), the parent company of Byju’s, by the Board of Control for Cricket in India (BCCI). The Hon’ble NCLAT, by way of the impugned judgment, set aside a judgment of the Ld. National Company Law Tribunal, Bengaluru Bench (NCLT), whereby the corporate insolvency resolution process (CIRP) against the Corporate Debtor was initiated. The CIRP against the Corporate Debtor was initiated pursuant to a section 9 petition preferred by the BCCI.

 

Subsequently, BYJU’s approached the Hon’ble NCLAT seeking approval of a settlement with the BCCI without complying with the prescribed withdrawal procedures under Section 12A of the IBC and Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). Exercising its inherent power under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 (NCLAT Rules), the Hon’ble NCLAT approved the settlement, thereby setting aside the Ld. NCLT’s order.

 

Notably, the procedure prescribed by way of the above section and regulations, inter alia, involves an application to the Ld. NCLT through the IRP or RP, as the case may be, with the approval of the Committee of Creditors (CoC) with a 90% voting share.

 

Against the above impugned judgment of the Hon’ble NCLAT, Glas Trust approached the Hon’ble Supreme Court objecting to the approval of the settlement by the Hon’ble NCLAT and questing the source of the funds of the said settlement. It was contended by Glas Trust that the Hon’ble NCLAT ought not to have exercised its discretionary power under Rule 11 to sanction the settlement when there is a prescribed procedure for withdrawal and settlement under Section 12A of the IBC read with Regulation 30A of the CIRP Regulations. It also contended that the Hon’ble NCLAT failed to address the objections raised about the source of the funds for the settlement.

 

Per contra, the Respondents, among others, contended that the inherent powers of the NCLAT under Rule 11 include the power to pass orders permitting the withdrawal of the CIRP and that Glas Trust, had no locus to maintain the present proceedings before the Supreme Court. It was also submitted that the payment to BCCI does not prejudice other creditors or stakeholders of the Corporate Debtor as it is not made from the possible insolvency estate that would be created if the Corporate Debtor goes through CIRP.

 

The Hon’ble Supreme Court, after having analyzed the issue in detail, allowed the appeal and set aside the impugned judgment of the Hon’ble NCLAT. The Hon’ble Court held that Glas Trust possessed the requisite locus to institute the said Civil Appeal before it as Section 62 of the IBC allows “any person aggrieved” by an order of the NCLAT to file an appeal to the Supreme Court, indicating no rigid locus requirement. Moreover, it was pointed out that once the CIRP is initiated, the proceedings become collective, involving all creditors, including the appellant, i.e., Glas Trust.

 

Without delving into the objections of the appellant to the settlement agreement on merits, the Hon’ble Court held that the NCLAT had erred in invoking its inherent powers under Rule 11 without following the prescribed procedure under Section 12A of the IBC read with Regulation 30A of the CIRP Regulations. The Bench viewed that recourse to Rule 11 of the NCLAT Rules was not warranted in the present circumstances and that ‘inherent powers’ cannot be used to subvert legal provisions, which exhaustively provide for a procedure. In the same vein, the Hon’ble Court averred that as per the procedure prescribed under law a withdrawal application can be moved only through the interim resolution professional or the resolution professional, as the case may be.

 

Having held the above, the Hon’ble Court granted liberty to the parties to invoke their remedies, to seek a withdrawal of settlement of claims, in compliance with the legal framework governing the withdrawal of CIRP.

 

The judgment highlights that the NCLAT cannot circumvent the detailed procedure by invoking its inherent powers under Rule 11. The decision reinforces the principle that once the CIRP is initiated, the proceedings become collective, and all creditors of the Corporate Debtor become stakeholders. This judgment is likely to have a significant impact on the market and the industry by ensuring that the interests of all creditors are considered and that the insolvency process is not used as a tool for coercion and debt recovery by individual creditors.

Authors & Contributors

Partner:

Abhishek Swaroop

 

 

Associates:

Bhawana Sharma

Shreya Chandhok

Kirti Talreja

Rounak Doshi

Bharath Krishna