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Ashok G. Rajani vs. Beacon Trusteeship Ltd. & Ors.

Civil Appeal · 2022 INSC 1003Decided 22 Sept 2022
Civil Appeal No. 4911 of 2021
Indira Banerjee · J.K. Maheshwari

Background

The appellant, a former director of Seya Industries Limited (the "Corporate Debtor"), challenged an NCLAT interim order that let insolvency proceedings (CIRP) against the company continue despite the parties having reached a settlement. Beacon Trusteeship, a debenture trustee that had invested in the company and later obtained an arbitral award against it for unpaid dues, had filed the original insolvency application. After the application was admitted by the NCLT, the parties settled their dispute, but before a Committee of Creditors (CoC) could be constituted and formally approve the withdrawal, the NCLAT declined to record the settlement and instead let the insolvency process (including handing over assets) proceed.

Decision Breakdown

The Court held that under Section 12A of the IBC, read with Rule 11 of the NCLT Rules (as interpreted in the earlier Swiss Ribbons judgment), an applicant can seek withdrawal of an insolvency application directly before the NCLT at any point before a Committee of Creditors is constituted, without needing the CoC's approval. Since no CoC had yet been formed in this case, there was no legal bar to the corporate debtor's settlement being considered, and given the debtor's substantial workforce, investments and net worth, there was no reason to stifle a genuine settlement. However, because the NCLAT's order was only an interim one and the settlement application was already pending before the NCLT, the Court found no substantial question of law requiring its intervention and dismissed the appeal, while directing the NCLT to take up and decide the pending settlement application in light of its observations.

Lesson Learnt

A company facing insolvency proceedings can settle with the creditor who initiated the case and seek withdrawal directly from the NCLT, without CoC approval, as long as no Committee of Creditors has yet been formed: genuine settlements should not be blocked purely to preserve insolvency timelines.

Official source (sci.gov.in)View Judgment (PDF)

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