IBC is not a Recovery Law, it is Revival Law
In this Flash editorial, the author begins by referring the provisions of rules 44(2) of IBC in relation to Withdrawal of Application – Once Admitted. Since the code come into effect from December 2016 all the applicants/ creditors have begun to file applications under the Code. Since date approx. 80 applications has been admitted. In some situations after admission of application Corporate Debtor settled the claim of Creditor. Then the question arises whether Petition under IBC 2016 can be withdrawn by mutual settlement. The main thrust of the article, however, is upon the “Whether an application can be withdrawn after mutual settlement between the Corporate Debtor and Creditor.”
In this editorial author discuss the decisions of Hon’ble National Company Law Tribunal (NCLT), Kolkata Bench in case of Parker Hannifin India Private Limited v/s Prowess International Private Limited. This article contains provisions of withdrawal of application under IBC, key findings of the case.
I. An application was filed by Parker Hannifin India Private Limited against Prowess International Private Limited for initiating corporate insolvency resolution process under section 8 and 9 of the IBC. Vide its order dated 20 April 2017, the NCLT admitted the aforesaid petition and inter alia appointed an interim insolvency resolution professional, declared moratorium, directed for public announcement.
II. In compliance with said order, A public announcement was issued and progress report was submitted by the interim insolvency resolution professional.
III. After that both the parties agree for the amicable settlement. An application was then filed with the NCLT by Corporate Debtor for withdrawal of the petition based on a settlement arrived at between Parker Hannifin India Private Limited and Prowess International Private Limited.
Provisions relating to Withdrawal Of Application under the IBC, 2016:
as per Rule 44 sub rule 2 of NCLT Rules, 2016 “(2) Where at any stage prior to the hearing of the petition or application, the applicant desires to withdraw his petition or application, he shall make an application to that effect to the Tribunal, and the Tribunal on hearing the applicant and if necessary, such other party arrayed as opposite parties in the petition or the application or otherwise, may permit such withdrawal upon imposing such costs as it may deem fit and proper for the Tribunal in the interests of the justice.”
as per Section 9(5)(ii)(b) “The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order reject the application and communicate such decision to the operational creditor and the corporate debtor, if – there has been repayment of the unpaid operational debt”
Findings of the NCLT Bench:
Based on the above factual background, the NCLT dismissed the application for withdrawal of the petition, and held as follows:
♣ As per Para 6:
i. perusal of section 9(5)(ii)(b) of the IBC, if repayment of the debt amount is made by the corporate debtor, then NCLT has power to reject the petition, before admission of the petition.
ii. After the admission of the petition, it acquires the character of representative suit and through publication in the newspapers, other creditors get a right to participate in the insolvency resolution process and claim before IRP
♣ Petition cannot be dismissed on the basis of compromise between the operational creditor and corporate debtor.
♣ Thus after admission of petition under IBC, lis does not only remains with the operational creditor and corporate debtor
♣ Operational Creditor and Operational Debtor alone have no right to withdraw the Petition after admission.
Based on the above judgment NCLT has cleared that once a petition is admitted by the NCLT under IBC, both the parties have no right to withdraw the petition. As it can say IBC is not a Recovery Law it is Revival Law.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at firstname.lastname@example.org)