The NCLAT New Delhi held that the Section 9 IBC Application to be allowed to continue as it would yield proper insolvency resolution of Corporate Debtor.
The National Company Law Appellate Tribunal (NCLAT), New Delhi bench comprising Justice Ashok Bhushan, Chairperson and Dr. Alok Srivastava, Technical Member were hearing a case having a bunch of six Appeals on Tuesday and held that once the claim and interest of financial creditor had been noticed by the Adjudicating Authority while considering the withdrawal application and ‘protection’ was granted through the stay order, which was further reinforced by the order requesting restoration of ‘status quo ante’ by the Appellate Tribunal, it would only be appropriate that the CIRP, which was initiated as a result of Section 9 Application vide Order dated 18.12.2020, be allowed to continue and run its due course as it would allow adequate and proper insolvency resolution of the corporate debtor.
In the present case, the Adjudicating Authority admitted the Section 9 Application filed by the operational creditor against the corporate debtor on 18.12.2020. It was the fact that the operational creditor and the corporate debtor entered into a settlement which led to the filing of an Application seeking withdrawal of the Section 9 admission order and closure of the CIRP. The said withdrawal application was challenged in Company Appeal wherein the Appellate Tribunal, after hearing both the Financial Creditor and Respondent, passed the order on 12.07.2021.
When the Adjudicating Authority passed an order dated 29.06.2021 effecting withdrawal of the admission order of section 9, it also stayed the operation of the said order for a period of one week till 07.07.2021. Therefore, the order to maintain status quo-ante with regard to the corporate debtor and its assets means that the withdrawal of Rs. 116.41 Crores by State Bank of India on 30.06.2021 was against this ‘stay order’ and this amount should be put back in the account of the corporate debtor, and additionally the hold put by SBI on amount of Rs. 31.27 Crores which was in the Trust and Retention Account should also be released so that the amount remains as an asset and under the control of the corporate debtor.
The Appellate Authority also noted that the financial creditor had intervened during the hearing in CP(IB) 759(AHM)2019 and thus showed its interest and claim even when the withdrawal application was under consideration by the Adjudicating Authority. This fact has been noticed by the Adjudicating Authority in its Order dated 30.06.2021 while staying the operation of its own order dated 29.06.2021. Further when an appeal was filed against the ‘withdrawal’ order dated 29/30.06.2021 which bears Company Appeal (AT) Ins. No. 475 of 2021, the Appellate Tribunal took note of the fact that other financial creditors and operational creditors had large claims pending payment by the corporate debtor. Therefore, a ‘stay’ on the impugned order dated 29.06.2021 given in Company Appeal (AT) Ins. No. 475 of 2021 restoration of ‘status quo ante’ was also ordered with the stipulation that the IRP will continue to be in the Management of the corporate debtor and CIRP would also continue.
The Appellate Tribunal found strength in the argument of Sr. Counsel for the Financial Creditor that if the CIRP under Section 9 Application was allowed to be closed, some creditors may have withdrawn amounts or received payments from the corporate debtor just as the SBI has done, which would be detrimental to the interest of the other creditors, particularly when another Section 7 Application filed by the financial creditor for insolvency resolution of the same corporate debtor was pending.
The Appellate Authority in the present case observed that the Adjudicating Authority while imposing a stay on its own Order dated 29.06.2021, recognized that Intervenor-Financial Creditor had raised its claim and interest before the Adjudicating Authority, and later the Appellate Tribunal also took note of the existence of Section 7 Application to pass a ‘stay’ vide order dated 12.07.2021, which was in the nature of ‘status quo ante’. The Appellate Authority found that it would not only lead to unnecessary complication in the Resolution Process if the withdrawal of the Section 9 Admission order is upheld and CIRP were to start afresh from the date of admission of the Section 7 Application, and it may also result in an inadequate insolvency resolution of the corporate debtor.
Thus, in the light of the facts and circumstances of the present case and the ‘stay orders’ whose effects are discussed in the above-stated paragraphs passed by the Adjudicating Authority and the Appellate Tribunal subsequent to the permission of withdrawal of Section 9 Application, the Appellate Authority were of the view that once the claim and interest of financial creditor had been noticed by the Adjudicating Authority while considering the withdrawal application and ‘protection’ was granted through the stay of its own order on 30.06.2021, which was further reinforced by the order dated 12.07.2021 requesting restoration of ‘status quo ante’ by the Appellate Tribunal, it would only be appropriate that the CIRP, which was initiated as a result of Section 9 Application vide Order dated 18.12.2020, be allowed to continue and run its due course as it would allow adequate and proper insolvency resolution of the corporate debtor.
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