NCLT Kochi Dismisses Union Bank's Plea To Withdraw CIRP, Says IBC Section 12A Procedure Is Mandatory

On Tuesday, 21 July, the Kochi Bench of the National Company Law Tribunal (NCLT) held that once a corporate insolvency resolution process (CIRP) is admitted, it cannot be withdrawn merely on the basis of a bilateral settlement between the financial creditor and the corporate debtor without following the statutory procedure under the Insolvency and Bankruptcy Code (IBC).

A Bench of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy dismissed Union Bank of India's application seeking withdrawal of the CIRP against Air Travel Enterprises India Limited and imposed costs of Rs. 1 lakh on the Bank. It held:

“The process becomes a collective insolvency proceeding conducted in the interests of all stakeholders under the supervision of the Committee of Creditors. Consequently, any proposal for withdrawal must necessarily conform to the statutory mechanism prescribed under the Code and cannot be founded upon a private arrangement between two parties.”

Union Bank of India filed the application under Rule 11 of the National Company Law Tribunal Rules, 2016, seeking withdrawal of the CIRP after stating that Air Travel Enterprises India Limited had paid the entire one time settlement amount of Rs. 6.95 crore and that its loan account had been closed.

At the outset, the Tribunal found that the application had been drafted in a “wholly casual, contradictory and careless manner.” It observed:

“The Application has been preferred under Rule 11 of the National Company Law Tribunal Rules, 2016, seeking withdrawal of the proceedings, without disclosing the correct statutory provision governing such withdrawal or the factual foundation necessary for invoking the jurisdiction of this Adjudicating Authority.”

The Bench noted that although the application related to Air Travel Enterprises India Limited, it incorrectly described the respondent as Dr. Sahadulla M.I. It also contained inconsistent references to proceedings under Sections 7 and 95 of the IBC, indicating that pleadings from another matter had been reproduced without verification.

It observed that the Bank had invoked only Rule 11 of the NCLT Rules despite Section 12A of the IBC specifically governing the withdrawal of insolvency applications admitted under Sections 7, 9 or 10. Section 12A permits withdrawal only on an application by the Resolution Professional after approval by at least 90 per cent voting share of the Committee of Creditors (CoC). The Members noted:

“The inherent powers under Rule 11 cannot ordinarily be invoked to circumvent or substitute an express statutory mechanism provided under the Insolvency and Bankruptcy Code.”

Further, the Tribunal found that the application did not disclose whether the CoC had been constituted, whether the settlement proposal had been placed before it, or whether the approvals required under the IBC had been obtained.

During the hearing, the Resolution Professional informed the Bench that another financial creditor held more than 60 per cent voting share in the CoC. Referring to Section 12A of the IBC, the Bench observed:

“Section 12A(1) provides that the Adjudicating Authority may permit withdrawal of an application admitted under Sections 7, 9 or 10 only on an application made by the Resolution Professional with the approval of not less than ninety per cent voting share of the Committee of Creditors.”

Lastly, the Tribunal held that the application was fundamentally defective and incapable of being entertained as it failed to disclose compliance with these mandatory requirements. It imposed costs of Rs. 1 lakh on Union Bank of India and clarified that the costs were imposed personally on the Bank for filing a legally unsustainable application. It further directed that the amount must not be recovered, directly or indirectly, from the corporate debtor, any personal guarantor or any other stakeholder in the corporate insolvency resolution process.

Accordingly, the NCLT dismissed the application.

For Applicant: Advocate A.S.P Kurup

For Respondents: Advocates AC Venugopal, Manjula Devi, R Rajmohan (RP) and K.S Ravichandran, PCS