An Operational Creditor can make application before NCLT for initiation of corporate insolvency resolution process (CIRP) against defaulting Corporate Debtor.
You can read more about this in our blog IBC – A TOOL FOR RECOVERY BY OPERATIONAL CREDITORS
The Operational Creditor and Corporate Debtor may agree on a settlement prior to admittance of petition for CIRP and NCLT Benches have allowed matters to be withdrawn. Even in instances of undisputed and admitted liability and the matter, after being heard is listed for pronouncement, the NCLT Benches have supported and have allowed Corporate Debtor to settle if the corporate debtor shows intent to do so.
Post admittance of petition by the Adjudicating Authority (jurisdictional NCLT) and upon commencement of CIRP, the withdrawal can still be done but to be done in the following manner:
To facilitate the withdrawal of application made under Section 9 (by operational creditor), a new Section 12A was inserted in IBC. The Board vide its notification dated 3rd July, 2018, enabled the applicants to withdraw their application under Section 12A read with Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 in cases where the applicant and the corporate debtor have entered into terms of settlement after admission of the matter before the Adjudicating Authority but before issue of expression of interest under Regulation 36A.
The Applicant may make an application for withdrawal of petition under Form FA of the Schedule to the IRP/RP accompanied by a bank guarantee towards estimated cost incurred till the date of application. It must be ensured that application for withdrawal of petition is made before the issue for expression of interest under Regulation 36A.
The committee of creditors (COC) shall consider the application made within seven days of its constitution or seven days of receipt of the application, whichever is later. Where the application is approved by the committee with ninety percent voting share, the resolution professional shall submit the application to the Adjudicating Authority (NCLT) on behalf of the applicant, within three days of such approval. The Adjudicating Authority may, by order, approve the application submitted.
Recently, the NCLAT has adjudicated upon the new Section 12A in the matter of Vijender Kumar Singla v. Oriental Bank of Commerce & Anr (Company Appeal (AT) (Insolvency) No. 143 of 2018), wherein, the withdrawal of application was allowed after the acceptance of the application filed by the financial creditor as the settlement was agreed between the corporate debtor and the financial creditor and withdrawal of such application was approved by 100% of the voting shares of the CoC fulfilling the mandatory requirement mentioned under Section 12A of IBC.
In the matter of HGS India Ltd vs. Geo Api Solutions Pvt. Ltd. petition was admitted at NCLT, Mumbai wherein application under Section 9 of the Code was filed by HGS India Ltd. (Operational Creditor) against Geo Api Solutions Pvt Ltd. (Corporate Debtor). During the period of corporate insolvency resolution process (CIRP), no claims were received from the any creditors till the last date of submission of claims. Hence, the Committee of Creditors could not be formed. Meanwhile, during that period, the Operational Creditor arrived at a settlement with the Corporate Debtor. Since no COC was formed, the requirement for 90% approval could not be fulfilled. The Bench held that the petition for insolvency can be disposed off as settled, when no Committee of Creditors could get formed and the Corporate Debtor is willing to settle with the Operational Creditor.
The insertion of Section 12A is a welcome move on the part of the Government. Now, the Government has settled the position regarding the withdrawal of an application post its acceptance by the NCLT. However, the threshold of 90% (Ninety Percent) of voting share of CoC as mandatorily required for withdrawal of an application post its acceptance seems to be a stringent condition, which is not easy to be complied with since each lender may have its own view with respect to revival or restructuring of the corporate debtor. However, though stringent, the newly inserted section has opened a window for termination of CIRP proceedings upon settlement. IBC is thus a very good tool for maximization of recoveries for all stakeholders including financial and operational creditors.