No Straight Jacket Formula Can Be Laid Down For Adjudication Of Application U/S 12A Of IBC & Objections Therein: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that no straight jacket formula can be laid down for adjudication by the Adjudicating Authority of a 12A application and the objections filed therein. It further observed that the Adjudicating Authority has to see whether the claim has substantially been settled substantially or not. If it is satisfied that the amount has already been settled, it may consider this as one of the factors while allowing the application under section 12A. Brief Facts: Small Industrial Development Bank of India (SIDBI) has filed an application under Section 7 on 20.03.2020 against the Corporate Debtor, Kriti Prakashan Private Limited. On 21.06.2022, SIDBI sent an email to the IRP about corporate debtor's willingness to repay and settle full and final outstanding amount payable by the corporate debtor. On 22.06.2022, corporate debtor paid the amount i.e., Rs.1,58,70,199/- to the SIDBI, who issued a No-Objection Certificate (NoC). On 25.06.2022, IRP on behalf of the financial creditor, SIDBI filed Interlocut I.A. No. 182/2022 under Section 12A of the Code for withdrawal of the Company Petition. On 30.06.2022, HDFC Bank, another financial creditor of the corporate debtor submitted a claim of Rs.4,30,74,985/- to the IRP. HDFC's claim was not being collated by the IRP, in view of the Order dated 29.06.2022 passed by this Tribunal, HDFC Bank filed an Interlocutory Application (IA) before the Adjudicating Authority praying for permitting intervention of the applicant. It was further prayed that the application filed by the IRP for withdrawal of the CIRP be rejected. Both the applications were heard by the Adjudicating Authority and by separate order dated 13.02.2025, the application filed by the Bank was allowed whereas by Order of the same date dated 13.02.2025, the application filed under Section 12A by the IRP has been rejected. Contentions: The Appellant submitted that the filing of the application for withdrawal under Section 12A of the IBC prior to constitution of the CoC and subsequent to the constitution of the CoC are two different circumstances. It was also argued that when application under Section 12A of the IBC is filed prior to the constitution of the CoC, there is no jurisdiction of the Adjudicating Authority to entertain any objection by another creditor and disallow the application under Section 12A. Reliance is placed on the Supreme Court judgment in 'GLAS Trust Company LLC' Vs. 'BYJU Raveendran & Ors. (2024). Per contra, the Respondent submitted that after the CIRP was admitted under Section 7, the proceeding becomes “in rem” and HDFC Bank is also a stakeholder and creditor of the corporate debtor whose objection/claim was entitled to be considered before taking a decision under Section 12A application filed by the IRP on basis of settlement with another creditor SIDBI. Observations: The Tribunal noted that the Supreme Court in 'Swiss Ribbons Ltd. & Anr.' Vs. 'Union of India & Ors.' (2019) after referring to Regulation 30A of the CIRP Regulations, 2016 and noticing the scheme, observed that at any stage where CoC is not yet constituted, party can approach the NCLT directly which may allow or disallow application for withdrawal or settlement. The Court held that such an application will be decided after hearing all the parties concerned and considering all relevant factors on the fact of each case. Similarly, the Supreme Court in Glass trust (supra) held that however, given the in rem nature of the proceedings, an application under section 12A of the code must be decided only after hearing all the parties concerned and considering the relevant factors in the case. The above observations have been made with regard to situation when 12A application have been filed before the constitution of the CoC. The Tribunal noted that the principles that can be culled out from the above discussion is that before the constitution of the CoC, the NCLT must hear all parties and consider relevant factors when deciding an application for withdrawal under section 12A of the code. It was held that the process is adjudicatory in nature therefore it cannot be considered a mere formality. It was held that the NCLT when deciding such an application does not act as a post office which puts a stamp on the withdrawal application. While applying the above ratio to the facts of the present case, the Tribunal held that the Adjudicating Authority did not commit any mistake in allowing the HDFC Bank to file an application even after the settlement was arrived at between the parties and an application under section 12A was also filed by the IRP seeking withdrawal of CIRP application as it would have directly affected the interest of the Bank. ...

No Straight Jacket Formula Can Be Laid Down For Adjudication Of Application U/S 12A Of IBC & Objections Therein: NCLAT

Mohd Malik Chauhan

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