Non‑Compliance Of Form FA Cannot Defeat Insolvency Settlement Backed By CoC Approval: NCLT Chennai

On 23 March, the Chennai National Company Law Tribunal (NCLT) held that non-filing of Form FA during insolvency proceedings would not defeat a settlement where all dues were satisfied and Committee of Creditors (CoC) approval was already in place.

Form FA is the prescribed application to formally request withdrawal of insolvency proceedings once the parties have reached a settlement.

A Bench of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam closed the insolvency proceedings against Safire Machinery Company Private Limited, noting:

“It is true that in the present case, no Form FA has been given by the Applicant / Operational Creditor but it has filed an application seeking withdrawal of the petition stating that it has received its dues and nothing is now payable by the Promoter Directors of the Corporate Debtor.”

The Corporate Insolvency Resolution Process (CIRP) was initiated on an application filed by Operational Creditor Join Up Corporation, and an Interim Resolution Professional was appointed.

During the CIRP, Safire Machinery settled its dues with Financial Creditor Tamilnadu Mercantile Bank, and the settlement was approved by the CoC with 100% voting, prompting withdrawal of proceedings under Section 12A of the Insolvency and Bankruptcy Code.

However, the Operational Creditor was paid only the principal amount, with its interest claim not admitted. Aggrieved, it challenged the withdrawal before the NCLAT, which set aside the withdrawal and revived the CIRP. The Supreme Court upheld that an application under Section 12A can be filed only by the original applicant.

Following this, the Tribunal directed consideration of the Operational Creditor's interest claim. The parties negotiated and ultimately settled the interest component for a lump sum. When the Operational Creditor filed an application to record the settlement and withdraw its interest claim, the Resolution Professional objected, noting that Form FA had not been filed.

The Tribunal examined Section 12A of the IBC and Regulation 30A of the CIRP Regulations. It observed that the withdrawal application was filed after CoC constitution and that the sole Financial Creditor had already settled its claim. It held:

“…filing of Form FA would only be a formality and the withdrawal application given by the Applicant / Financial Creditor can meet the requirements as to filing of Form FA for withdrawal of the petition. The withdrawal had already been approved by the CoC by more than 90% voting. It is well settled law that procedures are the hand made of justice and the technicality should not come in the way of dispensation of the justice.”

Accordingly, the Tribunal allowed the application, closed the CIRP, and directed restoration of management to the Board of Directors.

For Applicant: R Sugumaran, IRP

For Respondent: Advocate Sandeep Bhuraria