Corporate Debtor Can Withdraw Application Filed Under Sec.10 IBC On Making OTS Offer To Creditor : NCLT [Read Order]

Can a corporate debtor, which had filed application for initiating insolvency process against itself, be allowed to withdraw it application at the fag end of the process on the ground that its offer of 'one-time settlement'(OTS) is acceptable to the sole financial creditor? Also, can a resolution application, whose plan was accepted by the Committee of Creditors, be allowed to withdraw its plan, citing the OTS offer by the corporate debtor to the financial creditor?The National Company Law Tribunal, Mumbai bench was faced with this unprecedented situation. To resolve the intricate situation, the NCLT adopted a creative interpretation of IBC and allowed the corporate debtor to withdraw the petition for its insolvency, though with costs, besides allowing the ex-director of the corporate debtor to make a one-time settlement offer to the financial creditor which was better than the resolution plan already under consideration for approval before the NCLT. In doing so, M K Shrawat, Member (Judicial) decided the following issues: Whether an Applicant who has filed an Application/Petition u/s 10 of the IBC is entitled to withdraw its own petition u/s 12A of IBC 2016.Whether a Resolution Applicant who has submitted a Resolution Plan which was approved with majority vote by CoC can be allowed to withdraw the said Resolution Plan which is under consideration for approval before the NCLT?Whether ex-director of the Corporate Debtor, which is under Insolvency can offer One Time Settlement (OTS) with the Financial Creditor/Creditors if qualified u/s 29A of the Insolvency Code 2016? The case pertains to corporate debtor SBM Paper Mills Ltd, which was incorporated to carry out trading activity of papers. SBM Paper Mills had filed an application under section 10 of the Insolvency Code in respect of a default in payment of loan of one 'Financial Creditor' that is Allahabad Bank. The application was admitted on October 17, 2017 with declaration of commencement of insolvency proceedings (CIRP). The bank was the sole member of 'Committee of Creditors' (CoC). In pursuance to an advertisement, seven entities expressed interest in submitting a resolution plan. Ultimately, only one -- M/s. Khandesh Roller Floor Mills --was considered qualified and the resolution plan was received on June 11, 2018. The resolution plan was approved by the CoC and an earnest money of Rs 50 lakhs was deposited by Khandesh besides a bank guarantee of Rs 95 lakh to show its bonafide. While on the one hand the Resolution Professional submitted the Resolution Plan before the NCLT for approval, on the other hand, Satyanarayan Malu, one of the Director of the suspended board of S B M Paper Mills, was carrying a parallel negotiation with the Allahabad bank and offered it a one-time settlement offer of Rs 18 crore of which Rs 1 crore was deposited in a no-lien account. Amidst all this, Khandesh expressed its desire to withdraw the Resolution Plan leaving only the option of liquidation with the CoC. While Malu and the Bank argued that if considered commercially, it is prudent not to object the withdrawal of the petition, the Resolution Professional opposed the plea for withdrawal of the resolution plan. The Resolution Professional opposed the request of withdrawal of the plan primarily on the ground that granting such a prayer may be in contradiction of the provisions of the Insolvency Code. To resolve the case, the first question that the Tribunal answered was: Whether an Applicant who has filed a petition u/s 10 is entitled to withdraw its own petition u/s 12A of the Code, especially when the said applicant has furnished the impugned Petition(CP 1362/2018) and now offering a onetime settlement as a Director in the suspended management of the Debtor Company. In answering this question, the Tribunal said, the Laws governing financial transactions must not be static due to one of the fundamental reason that the economic condition of the society keeps on fluctuating depending upon the government policies and market conditions. "With modesty I put my view that a golden rule of interpretation of such statute is to subscribe a 'creative interpretation'. However, hastened to add that a "Laxman Rekha" is to be drawn while interpreting the provisions of a Law so that the main Legislative intent be not disturbed. A purposeful interpretation, also termed as "purposive interpretation" is sometimes more helpful to redress the grievance, so therefore preferred from literal interpretation," the Tribunal said. "The first reaction during the course of hearing of this Bench was that how it is justifiable on the part of an applicant who has moved a Petition u/s 10 to declare itself insolvent at one point of time and thereafter at a later stage suo-moto seeking permission for withdrawal of the said Petition?" the Tribunal noted. The Tribunal, however, ...

Corporate Debtor Can Withdraw Application Filed Under Sec.10 IBC On Making OTS Offer To Creditor : NCLT [Read Order]

akanksha jain

The Bench also allowed the Resolution Application to allow its resolution plan, which was approved by CoC.

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