Telangana High Court
Mandava Holdings Pvt. Ltd. vs Ptc India Financial Services Limited on 24 December, 2024
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA
WRIT PETITION No.20620 OF 2024
Mr. Avinash Desai, learned Senior Counsel representing Mr. V.V.S.N.Raju, learned
counsel for the petitioner.
Mr. S.Niranjan Reddy, learned Senior Counsel appearing for the respondent No.1 (online).
Mr. Vivek Reddy, learned Senior Counsel representing Mr. Amir Bavani, learned counsel
for the respondent No.3.
ORDER:
The petitioner prays for a writ of Mandamus on the
respondent No.1 (R.1) with regard to a letter dated 30.10.2023
rejecting the petitioner’s One Time Settlement (OTS) Proposal dated
17.10.2023. The petitioner is the promoter of the Insolvent
Entity/NSL Nagapatnam Power and Infratech Limited (NNPIL)
which is presently in CIRP. The cause of action in the writ petition
is R.1’s rejection of the petitioner’s OTS without following the
Reserve Bank of India Framework for Compromise Settlements and
Technical Write-offs dated 08.06.2023 (RBI Framework). The
petitioner also seeks a direction on R.1 to reconsider the OTS
submitted by the petitioner in terms of the RBI Framework.
2. R.1, which rejected the petitioner’s OTS proposal by way of
the impugned letter dated 30.10.2023, is a Financial Services
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Company. The respondent No.2 (R.2) is the Reserve Bank of India
and the respondent No.3 (R.3) is the Successful Resolution
Applicant (SRA) which was impleaded by an order passed by a Co-
ordinate Bench on 12.09.2024.
3. The Court is informed that NNPIL filed an application for
Corporate Insolvency Resolution Process (CIRP) pursuant to a
Special Resolution passed by the majority of share holders under
section 10 of The Insolvency and Bankruptcy Code, 2016 (IBC) i.e.,
Initiation of Corporate CIRP by corporate applicant. The CIRP is
currently pending in the National Company Law Tribunal (NCLT)
and NNPIL is being represented by a Resolution Professional (RP).
NNPIL has not been made a party to the writ petition.
4. The relevant events leading to filing of the writ petition are as
follows:
5. On 17.11.2017, NNPIL (Corporate Debtor) filed a petition for
CIRP before the NCLT, Hyderabad Bench. The petition was
admitted by the NCLT on 18.01.2018 and moratorium was
declared under section 14 of the IBC. An Interim Resolution
Professional (IRP) was appointed from 2018 to 2022. A Committee
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of Creditors (CoC) was constituted to take decisions concerning the
Corporate Debtor. R.1/PTC India Financial Services Limited
sought to be made part of the CoC as the Financial Creditor. The
Supreme Court by its order dated 12.05.2022 directed the
inclusion of R.1 in the CoC. On 17.10.2023, the petitioner made
an OTS proposal of Rs.90 Crores to R.1 but it was rejected by R.1
on 30.10.2023 (impugned letter).
6. On 21.11.2023, the Resolution Professional invited
Prospective Resolution Applicants to submit a Resolution Plan for
resolution of the Corporate Debtor/NNPIL. On 19.02.2024, three
Prospective Resolution Applicants, including R.3, submitted their
Resolution Plans. On 16.07.2024, the Resolution Plan submitted
by R.3 was put to vote by the Resolution Professional in the CoC.
R.1 voted in favour of the Resolution Plan submitted by R.3 on
30.07.2024. On 31.07.2024, a Co-ordinate Bench passed an
interim order directing the respondents not to take any final
decision in respect of the step-down subsidiary company of the
petitioner but clarified that all other proceedings shall continue.
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7. On 01.08.2024, e-Voting in the CoC was completed and the
plan submitted by R.3 was approved by 83.35% of the CoC. The
Resolution Professional issued the Letter of Intent to R.3 in view of
R.3’s Resolution Plan being voted with the requisite majority in the
CoC. On 02.08.2024, R.3 paid the Performance Bank Guarantee of
Rs.17 Crores being 10% of the total Resolution Plan Value. The
Resolution Professional filed an application on 04.08.2024 before
the NCLT for approval of the Resolution Plan as approved by the
CoC.
8. Learned Senior Counsel appearing for the petitioner, R.1 and
R.3 have made their respective submissions and made extensive
arguments on the law on the subject.
9. The primary contention of learned Senior Counsel appearing
for the petitioner is that the RBI Framework is binding on R.1 and
it is undisputed that R.1 has not followed the Board-Approved
Policy laid down by the RBI Framework for considering the
petitioner’s OTS proposal. Counsel relies on paragraph 6 of the
RBI Framework in this context and further submits that R.1 has
taken an ad hoc decision rejecting the petitioner’s proposal for OTS
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without considering the binding nature of the RBI Framework.
Counsel submits that the pendency of the CIRP would not be a
factor for R.1 to consider the petitioner’s OTS proposal and that
R.1 considered the OTS proposal after admission of the CIRP.
Counsel relies on section 12A of the IBC to urge that an
application for withdrawal under the said provision should be
submitted before issuance of the invitation for expression of
interest and that no restriction exists under the law to accept
withdrawal of an application filed under sections 7, 9 or 10 of the
IBC after issuance of invitation of expression of interest. Counsel
relies on the relevant provisions of the IBC including section 30A of
the IBC in this context. It is further submitted that each of the
CoC members must deliberate on the OTS proposal independently
to ensure that the decision complies with the RBI Framework
dated 08.06.2023 which consists of mandatory Guidelines for
considering the OTS Proposals. Counsel seeks setting aside of the
impugned letter and a direction on R.1 to reconsider the OTS
proposal dated 17.10.2023 submitted by the petitioner in terms of
the RBI Framework.
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10. Learned Senior Counsel appearing for R.1/Financial Creditor
places the relevant dates in the context of the impugned rejection
of the petitioner’s OTS proposal and initiation of the CIRP.
Counsel submits that the petitioner made its offer for OTS during
the pendency of the CIRP and that there had never been any
agreement between the parties for accepting the OTS of Rs.90
Crores. Counsel submits that the outstanding amount due from
the Corporate Debtor is approximately Rs.671 Crores as on
30.11.2024. Counsel also argues against the maintainability of the
writ petition and that the RBI Framework has no application to the
facts of the present case. Counsel lays stress on the legal
impermissibility of considering an OTS proposal after approval of
the Resolution Plan by the CoC. Counsel submits that the only
attempt of the petitioner is to derail the CIRP and defeat
implementation of the Resolution Plan.
11. Learned Senior Counsel appearing for R.3/Successful
Resolution Applicant submits that the petitioner is not entitled to
any relief in view of the delay in filing of the writ petition i.e., 6
years after commencement of the CIRP and 1 year after the
rejection of the OTS proposal. Counsel submits that the petitioner
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has an adequate alternative remedy under section 60(5) of the IBC
and that the RBI Framework is not applicable to the borrower
entity under the CIRP since the borrower entity has also not been
made a party to the writ petition. Counsel urges that
R.1/Financial Creditor does not have jurisdiction to entertain an
OTS proposal after initiation of the CIRP and that the petitioner
cannot bypass the legal mandate under the IBC in terms of
deviating from the Resolution Plan submitted by R.3.
12. These are the Issues which arise in the context of the
arguments put forth on behalf of the parties:
I. Is the petitioner entitled to relief after commencement of the
CIRP ?
II. Can the RBI Regulations create new rights which are not
contemplated under the IBC – which is a self-contained Code?III. Was the Rejection of the Petitioner’s OTS vitiated by reason of
R.1 not having a Board-Approved Policy as on 30.10.2023?IV. Is the writ petition maintainable in the face of the alternative
remedy under section 60 (5) of the IBC ?
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W.P.No.20620 of 2024V. Can R.1, as the sole Financial Creditor, entertain an OTS once
the Corporate Debtor enters CIRP ?
VI. Can an application for withdrawal from CIRP be entertained
after the CoC approves the Resolution Plan?VII. Is the writ petition maintainable in the absence of a necessary
party/the borrowing entity?
I Is the petitioner entitled to relief after commencement of the
CIRP ?
13. The Borrower Entity (which in a step-down subsidiary of the
petitioner) was admitted into insolvency on 18.01.2018. Section
12 of the IBC contemplates completion of the Insolvency
Resolution Process within 180 days which can be extended by
another 90 days. The petitioner’s OTS proposal was rejected by
R.1 on 30.10.2023 (impugned in the present writ petition). The
petitioner has however waited almost 6 years after admission of the
Borrower Entity into insolvency and almost a year from the
impugned rejection and filed the present writ petition on
30.07.2024.
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14. It is clear from the above that the petitioner failed, for
reasons unaccounted for, to immediately approach this Court after
the impugned rejection. The petitioner has not given any credible
reason for the intervening delay in filing the writ petition which
includes a delay of almost a year from the impugned rejection.
15. In any event, the rejection of the petitioner’s OTS proposal by
R.1 on 30.10.2023 was followed by four crucial events, which are
as under:
i. On 21.11.2023, the CoC (through the Resolution
Professional) invited Prospective Resolution Applicants to
submit their Resolution Plans.
ii. On 19.02.2024, the Prospective Resolution Applicants
submitted their Plans.
iii. On 16.07.2024, the Resolution Plans were put to vote by
the CoC.
iv. On 30.07.2024, R.1 who holds 85% of the CoC voting
share, voted in favour of the Resolution Plan submitted by
R.3.
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16. The above four significant events would lead to a reasonable
presumption that the petitioner, as the promoter of the Borrowing
Entity/Corporate Debtor, waited in the wings for the entire process
to be completed and only then approached the Court by way of the
present writ petition, ostensibly for frustrating the time-bound
Resolution Process as contemplated under the IBC.
17. The Supreme Court took note of the importance of a time-
bound Resolution Process in Arcelor mittal India Private Limited vs.
Satish Kumar Gupta 1; Gujarat Urja Vikas Nigam Limited vs. Amit
Gupta 2; and Bharti Airtel Limited vs. Vijaykumar V. Iyer 3. These
decisions placed emphasis on the primary object of the IBC which
is to resolve the CIRP in a time-bound manner for the purpose of
facilitating investments and higher economic development. After
all, the focus of the IBC is to ensure the revival and continuation of
the Corporate Debtor in the shortest possible time.
18. As stated above, the petitioner has not given any
explanation, credible or otherwise, as to why the petitioner failed to
approach the Court in 2018 or immediately after the rejection of
1 (2019) 2 SCC 1
2 ( 2021) 7 SCC 209
3 Civil Appeal Nos.3088-3089 of 2020
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the OTS in October, 2023. The petitioner’s delay would have the
effect of upending the Resolution Process. The delay thus clouds
the petitioner’s bona fides in filing the writ petition.
19. Further, the multiple OTS proposals given by the petitioner
during pendency of the writ petition may be seen as an attempt to
derail the CIRP and defeat realization of the funds through the
CIRP. In any event, the Court cannot compel the respondent No.1
to accept any OTS proposal made by the petitioner on behalf of its
step-down subsidiary/Borrowing Entity.
II Can the RBI Regulations create new rights which are not
contemplated under the IBC – which is a self-contained Code?
20. The Preamble to the IBC provides as follows:
“An Act to consolidate and amend the laws relating
to reorganisation and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound
manner for maximization of value of assets of such persons,
to promote entrepreneurship, availability of credit and
balance the interests of all the stakeholders including
alteration in the order of priority of payment of Government
dues and to establish an Insolvency and Bankruptcy Board
of India, and for matters connected therewith or incidental
thereto.”
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21. It is settled law that the IBC is a self-contained Code. In the
scheme of such an enactment, a party would have to trace its legal
right to the mechanisms, time frames and the relief provided for in
the Code itself. The petitioner now seeks to trace its legal right to
the OTS with only one of the creditors i.e., R.1. The IBC does not
provide for such a scenario, namely, that the borrowing entity can
negotiate with only one of the creditors in the CoC to the exclusion
of the other creditors. It is of seminal importance that the CIRP
was set in motion from 18.01.2018.
22. The IBC has been described as an exhaustive Code on the
subject matter of insolvency in relation to Corporate entities:
Innoventive Industries Ltd. v. ICICI Bank 4 and more categorically
as “a Complete Code in itself” defining fair and equitable treatment
of stakeholders in the CIRP by constituting a comprehensive
framework within which the actors participate in the insolvency
process: Pratap Technologies Private Limited vs. Monitoring
4 (2018) 1 SCC 407
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W.P.No.20620 of 2024Committee of Reliance Infratel Limited 5 and E.S. Krishnamurthy vs.
M/s. Bharath Hi-Tech Builders Pvt. Ltd 6.
23. The petitioner’s contention that the RBI Circular would apply
to the facts of the case notwithstanding the ongoing CIRP would
also attract the Supreme Court’s decision in Bharti Airtel Limited
(supra) which considered whether the principle of set-off under
Order VIII Rule 6 of The Code of Civil Procedure, 1908, can apply
to claims against an entity undergoing insolvency. The Supreme
Court held that the principle of set-off/insolvency cannot be made
applicable as it is not permitted under the IBC. The notable aspect
is that a right which has not specifically been provided for in the
IBC cannot be applied to a Company undergoing insolvency.
24. The Court is hence of the view that the mandate of the RBI
Framework must give way to the CIRP of the Borrower Entity once
the process has been initiated. It is further relevant that
paragraph 14 of the RBI Circular provides that “the compromise
settlements with the borrowers under the above framework shall be
without prejudice to the provisions of any other statute in force”
5 (2021) 10 SCC 623
6 2022 3 SCC 161
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W.P.No.20620 of 2024which indicates that the RBI Framework recognizes the precedence
of the relevant statute (the IBC in this case) and that any
settlement must be done within the statutory framework of the
IBC.
III Was the Rejection of the Petitioner’s OTS vitiated by reason of
R.1 not having a Board-Approved Policy as on 30.10.2023?
25. The petitioner’s contention that the respondent No.1 was
disqualified from rejecting the petitioner’s OTS proposal by reason
of not having a Board-Approved Policy in place – is not acceptable
for the following reasons.
26. Clauses 1 and 2 of the RBI Framework for Compromise
Settlements and Technical Write-offs dated 08.06.2023, relied
upon by the petitioner, makes it clear that;
“Regulatory Entities (REs) shall put in place Board-
approved policies for undertaking compromise
settlements with the borrowers…”
27. Clause 1 defines “Compromise Settlement” as any negotiated
arrangement with the borrower to fully settle the claims of the
Regulated Entity (‘RE’) against the Borrower in Cash. Clause 2 of
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the Framework requires that the Board-Approved Policy “shall
comprehensively lay down the process to be followed for all
compromise settlements and technical write-offs, with specific
guidance on the necessary conditions precedent such as minimum
ageing, deterioration in collateral value”. Clauses 1 and 2 of the
RBI Framework reveals that a Board-Approved Policy will only be
required for taking a compromise settlement forward i.e., any
arrangement initiated between the RE and the Borrower for settling
the claims of the former. Clause 2 of the RBI Framework clarifies
that a Board-Approved Policy is essentially for putting in place “the
Process” to be followed in compromise settlements.
28. Therefore, not having a Board-Approved Policy at the time of
rejection of the petitioner’s OTS would not undermine the rejection
since the rejection itself precluded any compromise settlement
between the petitioner and the respondent No.1 after 30.10.2023.
The requirement of following the process under a Board-Approved
Policy was a part of the RBI Prudential Framework for Resolution
of Stressed Assets dated 07.06.2019, which preceded the
08.06.2023 Framework. The meaning given to a Board-Approved
Policy in Clause 9 of the 07.06.2019 Framework was similar to
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that of the 2023 Framework, namely, that a Board-Approved Policy
would kick-in only after the lender puts a timeline for resolution of
the stressed asset in place.
29. However, the more fundamental question is whether the
petitioner can question the respondent No.1 for not having a
Board-Approved Policy in place as on 30.10.2023, which is the
date of the impugned rejection of the petitioner’s OTS proposal.
The undisputed dates indicate that the Corporate Debtor (step-
down subsidiary of the petitioner) filed an application for initiation
of the CIRP on 17.11.2017 before the NCLT, at Hyderabad. The
application was admitted on 18.01.2018 and the CIRP commenced
on and from that date. The Prudential Framework of 07.06.2019
and the Compromise Framework of 08.06.2023 came after one
year and five years respectively, from the date of admission of the
Corporate Debtor into CIRP. Therefore, there was no mandate on
the respondent No.1 to establish that it had a Board-Approved
Policy in respect of the Corporate Debtor as on 30.10.2023
specially since the CIRP was already five years into the process
post – admission.
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30. Even more fundamental is the fact that none of the RBI
Frameworks cast any duty or obligation to the lender/Regulated
Entity to consider the OTS proposal given by the Borrower. This
would be evident from the introduction to the Framework of
08.06.2023 which recognizes that a compromise settlement is a
step in aid to a valid Resolution Plan for stressed accounts for
providing further impetus to resolution of stressed assets in the
system. In other words, there is no duty on the part of the RE/the
respondent No.1 to consider the OTS of any Borrower/the
petitioner. The RBI Circulars/Frameworks constitute a regimented
procedure for resolution of stressed assets as opposed to a duty
cast on the lenders to consider OTS proposals given by the
Borrowers. Hence, in the absence of such a duty, there cannot be a
corresponding right on the part of a borrower to be considered for
OTS. In any event, a Writ Court does not have the power to issue a
writ of Mandamus directing a financial institution to positively
grant the benefit of OTS to a borrower. Such a decision is
exclusively within the commercial wisdom of the concerned lender:
Bijnor Urban Cooperative Bank Limited, Bijnoor Vs. Meenal
Agarwal 7
7 (2023) 2 SCC 805
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31. The RE’s request to the petitioner to extend the EMD of the
OTS offer for 3 months cannot be equated to an acceptance of the
petitioner’s OTS. In any event, the respondent No.1 was dealing
with a Borrower which was already in CIRP as on 10.10.2020 (the
date of the mail by which the request was made) and would hence
be under an obligation to act in terms of the law, i.e., the
provisions of the IBC.
IV Is the Writ Petition maintainable in the face of the Alternative
Remedy under section 60 (5) of the IBC ?
32. Section 60(5) of the IBC provides as follows:
“60. Adjudicating Authority for corporate persons:
………
(5) Notwithstanding anything to the contrary contained in any other
law for the time being in force, the National Company Law Tribunal
shall have jurisdiction to entertain or dispose of–
(a) any application or proceeding by or against the corporate
debtor or corporate person;
(b) any claim made by or against the corporate debtor or
corporate person, including claims by or against any of its
subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts,
arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor or corporate
person under this Code.”
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33. Under section 60(5) of the IBC, the NCLT has the jurisdiction
to resolve any disputes concerning the insolvency of a Corporate
Debtor. As discussed above, the IBC is a comprehensive and self-
contained Code dealing with insolvency and bankruptcy by
creating a dedicated forum for resolving disputes arising out of or
concerning insolvency of a Corporate Debtor.
34. Therefore, the appropriate remedy of the petitioner, insofar
as R.1 or R.3 are concerned, is to apply before the NCLT for
appropriate relief. The petitioner cannot upend the insolvency
process by invoking the writ jurisdiction of the High Court under
Article 226 of the Constitution of India. The IBC also provides for
challenging any order passed by the NCLT before the National
Company Law Appellate Tribunal (NCLAT) under section 61 of the
IBC.
35. The petitioner has not given any explanation for not
approaching the NCLT, and filing the present writ petition instead.
The turn of events is all the more significant since the petitioner
previously invoked the remedies provided under the IBC in relation
to the petitioner being included in the CoC.
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36. The IBC has overriding effect in view of the non-obstante
clause in section 238 of the IBC: Anand Rao Korada, Resolution
Professional vs. Varsha Fabrics Private Limited 8 and Maha Hotel
Projects Private Limited vs. Government of Telangana9. It was also
held in the first decision that the High Court was not justified in
passing orders for auction of the assets of the Corporate Debtor
who was before the NCLT. The Court is therefore of the view that
the petitioner has an alternative remedy within the framework of
the IBC and has fallen short of giving reasons for refusing to avail
of the effective statutory remedy.
V Can R.1, as the Sole Financial Creditor, entertain an OTS once
the Corporate Debtor enters CIRP ?
37. As stated in the earlier part of this judgment, the petitioner
seeks a direction on R.1/sole financial creditor to consider the
petitioner’s OTS proposal. R.1 is however only one of the creditors
in the CoC.
8 (2020) 14 SCC 198
9 W.P.No.17129 of 2020
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38. Under the IBC, once an entity is admitted in CIRP, the
proceeding before the NCLT is transformed from a single or two-
party proceeding into one in rem i.e., a collective proceeding with
public ramifications. This means that if any entity wants to
withdraw the CIRP, it would have to obtain the approval of the
entire CoC in accordance with law. The option of negotiating with
only one creditor (R.1 in this case) is not contemplated under the
law: GLAS Trust Company LLC Vs. BYJU Raveendran 10.
39. In essence, any decision concerning the creditors must be in
the form of a collective decision once an entity (in this case the
Corporate Debtor) has subjected itself to the CIRP mechanism. In
BYJU Raveendran (supra), the Supreme Court, relying on Swiss
Ribbons (P) Ltd. Vs. Union of India 11 , recognized that the CoC,
which oversees the Resolution Process, must be consulted before
allowing the claim to be settled. The Supreme Court further held
that the NCLT and the NCLAT are the designated fora for a
challenge to the CoC’s decision.
10 Civil Appeal No.9986 of 2024
11 (2019) 4 SCC 17
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40. Therefore, the position of law is this. The High Court
conferring jurisdiction on a single creditor (R.1) to consider the
settlement proposal of the petitioner cannot be permitted once the
insolvent entity has entered the portals of the CIRP. Notably, the
petitioner seeks this relief not within the scheme of a self-
contained Code like the IBC but by invoking the writ jurisdiction of
the Court. The petitioner’s undoing of a legal prohibition under
the IBC is thus contrary to law and legally impermissible.
41. The Resolution Plan once approved by the CoC and
submitted before the NCLT is binding on the CoC, the Successful
Resolution Applicant (SRA) and the concerned stakeholders : Ebix
Singapore Private Limited (supra), Hem Singh Bharana (supra),
Kalinga Allied Industries India (P) Ltd. Vs. Committee of Creditors
(Bindals Sponnge Industries Limited), through Punjab National
Bank 12.
42. The IBC, 2016 provides for a scheme for resolution of
insolvency in sequential steps after initiation of CIRP by a
Corporate Applicant under Section 10. Sections 13 and 14
12 2022 SCC OnLIne NCLAT 1618
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provides for declaration of moratorium and public announcements.
The form of public announcement is provided under Section 15.
Interim Resolution Professional (IRP) is appointed thereafter for
management of the affairs of the Corporate Debtor under Sections
16 and 17. Section 20 provides for management of operation of
Corporate Debtor as a going concern and Section 21 contemplates
constitution of a CoC by the IRP after collation of all claims
received against the Corporate Debtor and determination of the
financial position of the Corporate Debtor. Section 22 provides for
appointment of a Resolution Professional in the first meeting after
which the Resolution Professional takes over the conduct of the
CIRP under Section 23. Section 24 provides for meeting of the CoC
and Section 28 for approval of certain actions by the CoC including
raising of interim finance, creation of security interest and
recording change in the ownership interest of the Corporate
Debtor. Section 29 provides for preparation of information
memorandum followed by Section 31 which contemplates for
approval of the resolution plan by the CoC under Section 30 of the
IBC.
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43. The above sequence has been stated to understand the
inexorable flow of proceedings once a corporate debtor enters into
CIRP. The Corporate Debtor loses its voice/decision-making
powers and relinquishes control over its fate once the CIRP takes
over. The Corporate Debtor simply goes along with the flow of the
processes without any counter movement to reverse the movement.
44. Significantly, between 18.01.2018 (the date of admission of
the Borrower’s application for CIRP) and 30.07.2024 (the date of
filing of the present writ petition), there were at least four
irreversible events which took place in the course of the CIRP.
These are (1) the commencement of the CIRP of the petitioner’s
step-down subsidiary on 18.08.2018, (2) the invitation to
prospective Resolution Applicants to submit Resolution Plans in
respect of the Corporate Debtor on 21.11.2023, (3) the Resolution
Plan of the respondent No.1 being put to vote on 16.07.2024, and
(4) approval of the respondent No.3’s Resolution Plan on
30.07.2024.
45. None of these events, as per the law declared by the
Supreme Court, can now be reversed or be obliterated for a clean-
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slate start for considering the petitioner’s proposal afresh. As
stated above, a CIRP replaces bipartite negotiations with multi-
party resolutions. The other parties, which would include the
respondent No.2 and the other members of the CoC, cannot be
made to vanish from the advanced stage of the CIRP by clearing
the stage for a re-raising of the curtains for replay of Act I when the
stage is set for the denouement.
46. Notably, the petitioner unilaterally submitted an OTS offer
on 29.07.2020 to the respondent No.1 for Rs.90 Crores and
furnished an earnest money deposit of Rs.4.5 Crores during
pendency of the CIRP. The petitioner made OTS proposals on
26.08.2023, 15.02.2023, 21.07.2023, 29.08.2023, 30.09.2023 and
on 17.10.2023. The petitioner’s 3 additional offers on 26.07.2024,
31.07.2023 and 24.09.2024.
47. The petitioner in effect wants the super structure to collapse
when the substratum itself has crumbled.
VI Can an application for withdrawal from CIRP be entertained
after the CoC approves the Resolution Plan?
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48. Section 12A of the IBC provides for withdrawal of
applications admitted under sections 7, 9 or 10 being initiation of
CIRP by a Financial Creditor, an operational creditor and by the
corporate applicant, respectively.
49. Section 12A of the IBC is set out below:
10.–The Adjudicating Authority may allow the withdrawal of
application admitted under section 7 or section 9 or section 10, on
an application made by the applicant with the approval of ninety
per cent voting share of the committee of creditors, in such manner
as may be specified.”
50. The provision makes it clear that withdrawing an application
post-admission is not a two-way process i.e., an application by the
applicant who seeks to withdraw and the adjudicating authority,
allowing it, simpliciter. It involves multiple actors since the
applicant must also get the approval of 90% of the voting share of
the CoC in the prescribed form.
51. Section 12A of the IBC further makes it clear that once a
Resolution Plan is approved by the CoC, it becomes binding and
cannot be undone even by the NCLT and neither the CoC nor the
Successful Resolution Applicant can deviate from or abandon the
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W.P.No.20620 of 2024
Resolution Plan: Ebix Singapore Private Limited vs. Committee of
Creditors of Educomp Solutions Limited 13. The Supreme Court in
Ebix Singapore Private Limited (supra) unequivocally declared that
there was no scope for negotiation and discussion after approval
of the Resolution Plan by the CoC. In other words, the submitted
Resolution Plan is binding and irrevocable as between the CoC
and the Successful Resolution Applicant in terms of the IBC and
the Resolutions framed thereunder: State Bank of India vs. The
Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch 14. In
the said decision, the Supreme Court placed emphasis on the
commercial wisdom of the CoC which assumes a position of
superiority to all the stake holders. In fact, the hands-off
approach was also extended to the NCLT which cannot trespass
into the commercial wisdom exercised by the CoC.
52. In Hem Singh Bharana vs. Pawan Doot Estate Pvt. Ltd., 15 the
National Company Law Appellate Tribunal (NCLAT) relied on Ebix
Singapore Private Limited (supra) and reiterated that the CoC itself
is bound by its approval of Resolution Plan and cannot be allowed
13 (2022) 2 SCC 401
14 Civil Appeal Nos.5023-5024 of 2024 dated 07.11.2024
15 2023 SCC Online NCLAT 34
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to resile from its decision. The CoC’s decision imparts the
required finality on the different steps of the IBC for timely
conclusion of the Resolution Process. Hem Singh Bharana was
confirmed by the Supreme Court on 30.01.2023. In the present
case, the CoC approved the Resolution Plan of R.3 on 01.08.2024
with the requisite majority. Therefore, the Resolution Plan
approved by the CoC has become binding on the stakeholders
including R.1 and R.3. The petitioner cannot be allowed to
achieve indirectly what it could not have done under the IBC
regime.
53. Therefore the petitioner’s argument that an applicant (the
petitioner herein/Corporate Debtor) can withdraw from the CIRP
at any point of time without any strings attached is simplistic, to
say the least. The effect of the withdrawal would undo what
cannot be undone before the NCLT. The withdrawal would also
unsettle a binding settlement between the CoC and the Successful
Resolution Applicant (R.3).
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W.P.No.20620 of 2024
VII Is the writ petition maintainable in the absence of a necessary
party/the borrowing entity?
54. The Borrowing Entity i.e., NNPIL is a necessary party since
the said entity was put under the Insolvency Process pursuant to
obtaining the requisite approval of 3/4th of its shareholders.
55. Section 10 of the IBC provides as under:
“Section 10. Initiation of corporate insolvency resolution
process by corporate applicant.
(1) Where a corporate debtor has committed a default, a
corporate applicant thereof may file an application for
initiating corporate insolvency resolution process with the
Adjudicating Authority.
(2)……
(3) The corporate applicant shall, along with the application,
furnish–
(a) ……
(b) ……
(c) the special resolution passed by shareholders of the
corporate debtor or the resolution passed by at least
three-fourth of the total number of partners of the
corporate debtor, as the case may be, approving filing of
the application.”
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W.P.No.20620 of 2024
56. The prayer in the writ petition i.e., to declare the R.1’s
rejection of the OTS proposal of the petitioner, without following
the RBI Framework dated 08.06.2023 as illegal and arbitrary and
for a direction on R.1 to reconsider the OTS proposal submitted on
17.10.2023 in terms of the RBI Framework dated 08.06.2023,
makes it clear that the Borrowing Entity is the main beneficiary of
the relief. That is not at all. The petitioner seeks to reverse the
effects of the Voluntary Insolvency Process which will necessarily
affect the Borrowing Entity. The Borrowing Entity is undoubtedly
a necessary party to the proceedings whose presence is required
for a complete adjudication of the issues raised in the writ petition.
The writ petition becomes vulnerable on this ground alone.
Moreover, the Borrowing Entity is undergoing CIRP. The
management and control of the Borrowing Entity presently rests
with the Resolution Professional who is also not a party to the writ
petition.
On the other hand, Indian Overseas Bank is not a necessary or a
proper party to the writ petition:
57. The petitioner seeks impleadment of the Indian Overseas
Bank in I.A.No.7 of 2024. However, as per the petitioner’s own
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W.P.No.20620 of 2024showing, the principal prayer is against R.1 for rejection of the OTS
proposal dated 17.10.2023. Indian Overseas Bank has no role to
play with regard to the OTS proposal submitted by the petitioner to
R.1 or the rejection thereof. I.A.No.7 of 2024 seeking impleadment
of the Indian Overseas Bank should hence be dismissed. In any
event, the admitted cause of action in the writ petition is against
R.1.
58. Besides, R.1 constitutes 85.35% of the CoC and any
application for withdrawal of the CIRP under section 12A of the
IBC can only be done with the approval of 90% of the voting share
of the CoC. The petitioner’s prayer to implead the Indian Overseas
Bank is therefore a relief which, by all means, falls within the
regime of the IBC and is entirely within the powers of the NCLT.
The petitioner cannot be permitted to crowd the Writ space with
actors who should be in the arena of the NCLT.
The question mark on the maintainability of the writ petition:
59. R.1 is a Non-Banking Financial Company (NBFC) registered
with the Reserve Bank of India. R.1 is not a statutory authority
and the Central or the State Governments have not infused any
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W.P.No.20620 of 2024funds in it. The activities of R.1 are of a private and commercial
nature. R.1 is also not a creature of a statute and admittedly
without State protection or monopoly and is not discharging
sovereign functions or public duty. Therefore, it is arguable
whether R.1 is a “State” under Article 12 of the Constitution of
India or an “Authority” within the meaning of Article 226 of the
Constitution.
60. Moreover, the activities of R.1 being regulated by the RBI will
not make a difference since R.1 is engaged in the business of
financing/lending on purely commercial terms. A Single Bench of
the Delhi High Court in M/s.Rajpur Hydro Power Ltd. vs. M/s.PTC
India Financial Services Ltd 16 held that R.1 (the party respondent
therein) was not “State” under Article 12 of the Constitution. The
decision was affirmed by the Division Bench in M/s Rajpur Hydro
Power Ltd. vs. M/s. PTC India Financial Services Ltd. 17
61. The cases cited by the petitioner may be distinguished in the
following manner.
16 2017 SCC OnLine Del 8277
17 LPA No.401 of 2017 and C.M.No.19750 of 2017
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62. Brilliant Alloys Private Limited Vs. S.Rajagopal 18, a judgment
of 2018, was considered in Ebix Singapore Private Limited (supra)
pronounced by the Supreme Court in 2022 where it was held that
an application under section 12A cannot be maintained once a
Resolution Plan is approved by CoC. Ebix further held that a
Resolution Plan once approved by the CoC and submitted before
the NCLT is binding on the CoC, the successful Resolution
Applicant and the concerned stakeholders. Brilliant Alloys Private
Limited was also considered in BYJU Raveendran (supra) where the
Supreme Court opined that the CIRP becomes a collective
proceeding in rem after its initiation where all the creditors become
necessary stakeholders.
63. Shaji Purshottam Vs. Union Bank of India 19 , a decision of
2019 was considered by the NCLAT in 2023 in Hem Singh Bharana
wherein it was pointed out that Shaji Prurshottam did not lay down
any ratio with regard to entertaining an application under section
12A after approval of the Resolution Plan. Pro Knits Vs. The Board
of Directors Canara Bank 20 is not applicable to the particular facts
18 (2022) 2 SCC 544
19 2019 SCC OnLine NCLAT 1151
20 (2024) 10 SCC 292
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of this case since the Corporate Debtor was admitted in CIRP as of
January, 2018.
64. The above discussion persuades the Court to conclude that
the petitioner is not entitled to the relief prayed for under Article
226 of the Constitution of India. The petitioner should have taken
recourse to the provisions of the IBC and approached the NCLT for
appropriate relief. The writ petition is also not maintainable in
view of the efficacious statutory remedy under section 60(5) of the
IBC which is a comprehensive Code envisaging all possible
scenarios and modes of redress within the four corners of the IBC.
The first respondent, as the sole Financial Creditor, is also divested
of powers to entertain an OTS once the CIRP of the Corporate
Debtor is set in motion. The power to withdraw the applications
under section 12A of the IBC post-admission must also be subject
to the approval of the CoC in the manner prescribed in the said
provision.
65. The Court agrees with the contention of the respondent
Nos.1 and 3 with regard to the writ petition being rendered
irrevocably vulnerable by not impleading the Borrowing Entity who
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is presently in CIRP. The Court is of the view that the RBI
Framework for Compromise Settlements dated 08.06.2023 will not
apply in the case of the Borrowing Entity when the Framework was
not in existence at the time of the entity’s admission into CIRP.
The question of the first respondent not having a Board-Approved
Policy in place at the time of the impugned rejection hence
becomes irrelevant and in any event not fatal to the impugned
rejection.
66. In view of the above reasons, the writ petition fails on
maintainability as well as on merits.
67. W.P.No.20620 of 2024 is accordingly dismissed. There shall
be no order as to costs.
_________________________________
MOUSHUMI BHATTACHARYA, J
Date: 24.12.2024
VA/BMS