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NCLAT: Withdrawal of application by promoters under Section 12 of I & B Code

In Company Appeal (AT) (Insolvency) No. 601 of 2019, IN THE MATTER OF Shweta Vishwanath Shirke vs The Committee of Creditors, an application under section 7 of IBC was filed by Andhra Bank against Sterling Biotech in June 2018. Apart from defaulting loan of Rs 8,100 crore, the promoters of the debt- ridden Sterling Biotech were already facing charges of corruption and money laundering. The promoters of the Corporate Debtor absconded and government agencies like Enforcement Directorate and CBI were unable to trace them. Thereafter, a one- time settlement offer was made by on behalf of the promoters of the Corporate Debtor to the creditors. The offer stated that the entire payment under OTS shall be made by the promoters and not through the corporate debtor and its properties. The offer got a green signal by the committee of creditors. It subsequently prompted filing of withdrawal application as per section 12A of IBC. The NCLT did not accept the application and sent the corporate debtor for liquidation on the ground that the ‘Promoter’ not eligible to file the ‘resolution plan’ under Section 29A cannot file the application under Section 12A of the 1&B Code. 

The NCLAT reversed the impugned order dated of NCLT and allowed the appellant to withdraw the application. 

The NCLAT observed that from Section 12A of I & B Code and the decision  the Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr  vs. Union of India & Ors.- ‘2019 SCC Online SC 73, it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the ‘I&B Code’ on the basis of which the ‘Corporate Insolvency Resolution Process’ was initiated. In view of the aforesaid provisions of law, we hold that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’. In the present case, the ‘Corporate Insolvency Resolution Process’ was initiated pursuant to an application under Section 7 filed by the ‘Andhra Bank’ (Appellant herein). The application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable. In so far the assets of the ‘Corporate Debtor’ is concerned, if it is based on the proceeds of crime, it is always open to the ‘Enforcement Directorate’ to seize the assets of the ‘Corporate Debtor’ and act in accordance with the ‘Prevention of Money Laundering Act, 2002’ but that  it will not come in the way of the individual such as ‘Promoter’ or ‘Shareholder’ or ‘Director’, if he pays not from the proceeds of crime but in his individual capacity the amount from his account and not from the account/assets of the ‘Corporate Debtor’ and satisfies all the stakeholders, including the ‘Financial Creditors’ and the ‘Operational Creditors’. There is nothing on the record to suggest that the individual property of the ‘Promoter’ / ‘Shareholder’/ ‘Director’ who proposed to pay the amount has been subjected to restraint by the ‘Enforcement Directorate’. Therefore, even if the asset of the ‘Corporate Debtor’ is held to be proceeds of crime, the Adjudicating Authority cannot reject the prayer for withdrawal of application under Section 7, if the ‘Promoter’ / ‘Director’ or ‘Shareholder’ in their individual capacity satisfy the creditors.


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