Query; Whether a bank (FC), holding 100% voting share in CoC, pursuant to settlement with the Ex-directors/Guarantors can file withdrawal application under the provisions of section 12A, during the Liquidation process.
1. Section 12A is inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from 06.06.2018 on recommendation by Insolvency Law Committee Report submitted in Mar, 2018 to provide facility to withdraw application made under section 7, 9 or 10 on settlement even if CIRP has been initiated.
Section 12A reads as follows:
"The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety percent. voting share of the committee of creditors, in such manner, as may be specified."
2. Regulation 30A of IBBI (Insolvency Resolution Process For Corporate Persons) Regulations, (CIRP Regulations for brevity)
30A. Withdrawal of application
(1) An application for withdrawal under section 12A may be made to the Adjudicating Authority –
(a) before the constitution of the committee, by the applicant through the interim resolution professional;
(b) after the constitution of the committee, by the applicant through the interim resolution professional or the resolution professional, as the case may be:
Provided that where the application is made under clause (b) after the issue of invitation for expression of interest under regulation 36A, the applicant shall state the reasons justifying withdrawal after issue of such invitation.
(2) The application under sub-regulation (1) shall be made in Form FA of the Schedule-I accompanied by a bank guarantee-
(a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of sub-regulation (1); or
(b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of sub-regulation (1).
(3) Where an application for withdrawal is under clause (a) of sub-regulation (1), the interim resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt.
(4) Where an application for withdrawal is under clause (b) of sub-regulation (1), the committee shall consider the application, within seven days of its receipt.
(5) Where the application referred to in sub-regulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval.
(6) The Adjudicating Authority may, by order, approve the application submitted under sub-regulation (3) or (5).
(7) Where the application is approved under sub-regulation (6), the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of sub-regulation (2) till the date of approval by the Adjudicating Authority, as determined by the interim resolution professional or resolution professional, as the case may be, within three days of such approval, in the bank account of the corporate debtor, failing which the bank guarantee received under sub-regulation (2) shall be invoked, without prejudice to any other action permissible against the applicant under the Code.
3. Even during the Liquidation period, if any person satisfies the demands of the Committee of Creditors, such person may move before the Adjudicating Authority for withdrawal of the proceedings.
3(a).In the matter of Navaneetha Krishnan v Central Bank of India, Coimbatore & Another [Company Appeal (AT) (Insolvency) Nos. 288 & 289 of 2018], the Hon'ble National Company Law Appellate Tribunal vide its order dated 09.08.2018, held:
However, in view of Section 12A even during the liquidation period if any person, not barred under Section 29A, satisfy the demand of 'Committee of Creditors' then such person may move before the Adjudicating Authority by giving offer which may be considered by the 'Committee of Creditors', and if by 90% voting share of the 'committee of creditors', accept the offer and decide for withdrawal of the application under Section 7 of the I&B Code, the observation as made above or the order of liquidation passed by the Adjudicating Authority will not come in the way of Adjudicating Authority to pass appropriate order.
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3(b). Similarly in Shri. V S Varun Vs. M/s. South Indian Bank [I.A. No. 63 of 2022 in CP (IB) No.366/BB/2019] Hon’ble NCLT Bangaluru in its order dated 06.06.2022 held that;
The Promoter submitted the letter dated 07.12.2021 along with the revival plan of the corporate debtor. The Bank also submitted its letter dated 07.12.2021 intimating their withdrawal of claim on account of settlement.
Even during the Liquidation period, if any person, not barred U/s.29A of the Code satisfy the demands of the Committee of Creditors, such person may move before the Adjudicating Authority for withdrawal of the proceedings.
If the CoC resolve with more than 90% voting share to accept the settlement proposal of the Petitioner and to allow for drawal of the CP, neither the NCLT nor the Hon'ble NCLAT shall interfere with the same unless the decision of the CoC is wholly capricious, arbitrary, irrational and de hors the provisions of the Statue or the Rules.
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4. Section 29A of the Code is not applicable while deciding on the withdrawal of application under Section 12A of the I&B Code 2016.
4(a). In the matter of Shweta Vishwanath Shirke & Ors. Vs. The Committee of Creditors & Anr. (Company Appeal (AT) (Insolvency) No. 601 of 2019) Hon’ble NCLAT on 28.11.2019 held that;
# 12. From Section 12A and the decision of the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ (Supra), it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the ‘I&B Code’ on the basis of which the ‘Corporate Insolvency Resolution Process’ was initiated.
# 13. In view of the aforesaid provisions of law, we hold that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’.
# 14. In the present case, the ‘Corporate Insolvency Resolution Process’ was initiated pursuant to an application under Section 7 filed by the ‘Andhra Bank’ (Appellant herein). The application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable.
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What is pertinent to note here is that even though Section 29A of the Code restricts certain persons from submitting a resolution plan for the Corporate Debtor, however, in case of withdrawal of application under Section 12A, the applicability of Section 29A is nullified. Meaning thereby, when the CoC approves the withdrawal of the application and accepts the settlement offered by the corporate debtor by 90% votes, in such a case the provision of section 29A restricting the old management to regain the control of the corporate debtor does not apply and the control and approval of CoC trump the provisions of section 29A.
5. Regulation 30A has to be read along with the main provision Section 12A which contains no such stipulation (withdrawal after issue of invitation for expression of interest.). Accordingly, this stipulation can only be construed as directory depending on the facts of each case.
5(a). In matter of Brilliant Alloys Private Limited Vs. Mr. S. Rajagopal & Ors. [Petition(s) for Special Leave to Appeal (C) No(s). 31557/2018] Hon’ble Supreme Court on14.12.2018 held that;
The only reason why the withdrawal was not allowed, though agreed to by the Corporate Debtor as well as the Financial Creditor -State Bank of India and the Operational Creditor-Respondent No.3, is because Regulation 30A states that withdrawal cannot be permitted after issue of invitation for expression of interest.
According to us, this Regulation has to be read along with the main provision Section 12A which contains no such stipulation.
Accordingly, this stipulation can only be construed as directory depending on the facts of each case.
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5(b). In the matter of Vallal Rck v. M/s. Siva Industries And Holdings Limited And Ors [Civil Appeal Nos. 1811-1812 of 2022] Hon’ble Supreme Court on 03.06.2022 held that;
When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC.
The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.
It could thus be seen that this Court has found that if the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the learned NCLT and thereafter the learned NCLAT can always set aside such decision under the provisions of the IBC.
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Conclusion; Bank (FC), holding 100% voting share in CoC, pursuant to settlement with the Ex-directors/Guarantors can file withdrawal application under the provisions of section 12A, during the Liquidation process. In case the terms of settlement stipulate filing of withdrawal application under section 12A by the bank (FC), the applicant bank (FC) is contractually bound to file withdrawal application under section 12A, failing which the counterparty (promoter/guarantor) can demand for the status-quo-ante, & refund of settlement amount.
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