The Supreme Court on September 22, 2022 in the matter of Ashok G. Rajani vs Beacon Trusteeship Ltd. held that there is no bar to withdrawal of an admitted Corporate Insolvency Resolution Process (“CIRP”) application before constitution of Committee of Creditors (“CoC”) and that settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons.

In the instant matter, an appeal was filed under Section 62 of IBC challenging an order passed by the National Company Law Appellate Tribunal (“NCLAT”), whereby the Tribunal issued notice of the Appeal, but did not restrain the Interim Resolution Professional (“IRP”) from proceeding with CIRP of Seya Industries Limited (“Corporate Debtor”). The NCLAT, however, restrained the IRP from constituting a CoC, while the Corporate Debtor and the Creditor settle their disputes before the Adjudicating Authority in terms of Section 12A of the IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”).

The Court held that Section 12A of the IBC read with Rule 11 of NCLT Rules clearly permits withdrawal of an application under Section 7 IBC that has been admitted and that the question of approval of the Committee of Creditors by the requisite percentage of votes, can only arise after the Committee of Creditors is constituted. Thus, before the CoC is constituted, there is no bar to withdrawal by the applicant of an application admitted under Section 7 of IBC. It was further observed that

“The withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement. Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment.”

Thus, the Court dismissed the appeal and directed the NCLT to take up the settlement application.