The Supreme Court set aside the NCLAT-approved settlement due to its circumvention of Section 12A of the Insolvency and Bankruptcy Code (IBC) and the improper invocation of Rule 11 of the NCLAT Rules.
The Supreme Court Three-judges Bench of Dr D.Y. Chandrachud, CJI., Justice J.B. Pardiwala and Justice Manoj Misra reviewed an appeal and noted a landmark judgment. The Supreme Court Bench held that the invocation of Rule 11 of the NCLAT Rules, 2016, to approve a settlement post-CIRP admission is improper when the statutory framework under Section 12A of the IBC and Regulation 30A is available, emphasizing that insolvency proceedings are collective in nature and any withdrawal requires adherence to the prescribed process to protect creditor interests.
The Supreme Court addressed an appeal challenging the invocation of Rule 11 of the NCLAT Rules, 2016, in approving a settlement that led to the withdrawal of the Corporate Insolvency Resolution Process (CIRP) against Think & Learn Pvt. Ltd., initiated by the Board of Control for Cricket in India (BCCI) under Section 9 of the Insolvency and Bankruptcy Code (IBC). The NCLT, Bengaluru, had originally admitted the CIRP, but the NCLAT, Chennai, allowed a settlement between BCCI and the corporate debtor, setting aside the NCLT’s order. The appellant, GLAS Trust Company LLC, a financial creditor under a $1.2 billion loan agreement with Byju’s Alpha Inc., challenged the settlement, alleging misuse of funds tied to parallel proceedings in the U.S., specifically Delaware bankruptcy proceedings.
The appellant contended that the NCLAT improperly exercised inherent powers under Rule 11 instead of following the withdrawal mechanism under Section 12A of the IBC and Regulation 30A of the CIRP Regulations, 2016. It argued that withdrawal post-CIRP admission required approval by the Committee of Creditors (CoC) and that bypassing statutory procedures through inherent powers undermined the collective nature of insolvency proceedings. In response, the respondents, including Riju Raveendran, claimed the funds used for settlement were personal and not linked to the debtor's assets, with no violation of U.S. court orders.
The NCLAT approved the settlement, emphasizing that it ensured repayment to the operational creditor and upheld judicial precedents permitting inherent powers to prevent economic distress. However, it acknowledged that the appellant’s Section 7 petition for financial debt remained available for revival if the settlement failed. The appellant’s objections regarding the potential misuse of funds, as well as the fugitive status of the corporate debtor’s directors and related investigations, were dismissed as speculative.
The Supreme Court, in evaluating the appeal, reiterated the significance of adhering to statutory withdrawal procedures under Section 12A, which mandates CoC approval with a 90% voting share. It emphasized that insolvency proceedings are intended to benefit all creditors and not serve as tools for individual settlements. The Court noted that inherent powers under Rule 11 should only be exercised in exceptional cases, ensuring consistency with the statutory framework of the IBC and the principles of collective resolution. It referred to precedents such as Swiss Ribbons Private Limited v. Union of India and Others, REEDLAW 2019 SC 01504 and Ebix Singapore (P) Ltd. v. Committee of Creditors of Educomp Solutions Limited and Another, REEDLAW 2023 SC 08637 to underscore the limited scope for discretionary powers when detailed legal procedures are available.
The Court further ordered the settlement amount to be held in escrow and directed the continuation of CIRP, with the appellant participating in the CoC. It observed that the ongoing investigations and parallel proceedings in Delaware required careful consideration to prevent any potential misuse of the insolvency process. The judgment clarified that any withdrawal or settlement must align with the framework outlined in Section 12A and Regulation 30A, ensuring procedural predictability and safeguarding the interests of all stakeholders.
The appeal was allowed, setting aside the NCLAT’s judgment. The Supreme Court directed the NCLT to maintain the status quo regarding CoC operations until further orders, leaving the door open for the parties to pursue settlement or withdrawal following the prescribed legal process. The decision reinforced the principle that insolvency proceedings must prioritize collective creditor interests over individual agreements while ensuring compliance with statutory mandates.
Mr. Kapil Sibal, Senior Advocate and Mr. Shyam Divan, Senior Advocate represented the Appellant.
Dr Abhishek Manu Singhvi, Senior Advocate and Mr. Neeraj Kishan Kaul, Senior Advocates appeared for Respondent No. 1.
Mr. Tushar Mehta, Senior Advocate represented Respondent No. 2.
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