NCLAT New Delhi Lays Down Illustrative Factors For Withdrawal Of CIRP Before CoC Formation

The National Company Law Appellate Tribunal (NCLAT) on 6 April laid down illustrative guidelines for adjudicating authorities while considering applications for withdrawal of Corporate Insolvency Resolution Process (CIRP) under Section 12A of the Insolvency and Bankruptcy Code (IBC) before the constitution of the Committee of Creditors (CoC).

A Bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey held that once CIRP is admitted, the adjudicating authority must examine broader indicators of the corporate debtor's financial condition and the interests of other creditors, and cannot treat withdrawal as a mere bilateral settlement between the parties.

The Tribunal was hearing an appeal filed by Suyog Suryakant Talekar, the suspended director of Trivenimudrai Project Ltd., challenging the admission of a Section 9 insolvency petition filed by the operational creditor Baij Nath Ram Nath (India) Private Limited before the National Company Law Tribunal (NCLT), Mumbai Bench.

During the pendency of the appeal, the suspended director and the operational creditor reached an amicable settlement and placed a Memorandum of Settlement before the Appellate Tribunal seeking withdrawal of the insolvency proceedings. The Interim Resolution Professional informed the Tribunal that although creditor claims had been collated, the CoC had not yet been constituted.

The Tribunal relied on the Supreme Court's decision in Glas Trust Company LLC v. Byju Raveendran, which held that once CIRP is admitted the proceedings assume the character of a proceeding in rem. Therefore, the adjudicating authority must hear the parties concerned and consider all relevant factors before allowing withdrawal.

The Bench observed that while the phrase “parties concerned” would include other creditors of the corporate debtor, the expression “all relevant factors” had not been specifically elaborated. The Tribunal therefore outlined certain illustrative considerations that may guide adjudicating authorities while deciding such applications. According to the Tribunal, the adjudicating authority may examine factors such as:

1. whether any financial creditor has classified the corporate debtor's account as a Non-Performing Asset (NPA) and whether more than one year has passed since such classification;
2. whether the corporate debtor has been declared a wilful defaulter or its account marked as fraud;
3. whether any decree or order for recovery of money exists against the corporate debtor;
4. the list of creditors and the status of default owed to other creditors;
5. whether any litigation is pending that may have a bearing on the corporate debtor's solvency;
6. evidence regarding the solvency and creditworthiness of the corporate debtor, including its balance sheets and the ratio of assets to total debt.

The Tribunal clarified that these factors are illustrative and not exhaustive, and the adjudicating authority must independently weigh all relevant circumstances, including the views of other creditors.

On the facts of the case, the NCLAT directed the appellant to place the settlement proposal before the Interim Resolution Professional, who shall move an application under Section 12A of the IBC before the NCLT for withdrawal of the CIRP.

For Appellant: Mr. Aastik Dhingra, Advocate