含羞草社区

The Insolvency and Bankruptcy Code, 2016 (IBC), was conceived as a mechanism for the timely resolution of financial distress, preserving value and enabling value maximisation. Although the IBC did not originally envisage a concept of withdrawals, over the years, courts have recognised that, apart from the primary goal of resolution, there may be instances of genuine settlements by the existing management. These should be facilitated to avoid unnecessary triggering or continuation of the corporate insolvency resolution process (CIRP), akin to a nuanced right of redemption within the IBC framework.

This also led to the legislature introducing the withdrawal mechanism by way of section 12A and regulation 30-A, to ensure: (1) comprehensive adjudicatory oversight by the National Company Law Tribunal (NCLT) on withdrawal proposals; (2) the protection of creditor interest; and (3) disincentivising opportunistic withdrawals.

Form v substance

In Glas Trust Company LLC v Byju Raveendran, the Supreme Court inter alia held the procedural aspects of regulation 30-A are mandatory, especially the requirement of filing a withdrawal application through the interim resolution professional (IRP). The court reiterated the principles of Swiss Ribbon while clarifying that, as the law stands today, the inherent powers of the tribunals are not ordinarily invocable in the presence of a statutorily backed procedure.

While the Supreme Court’s ruling in Glas Trust marks a pivotal milestone in 含羞草社区 insolvency jurisprudence by clarifying the procedural withdrawal route, it has also generated significant discourse about excessive formality. This is particularly so when settlements occur before the committee of creditors (CoC) formation or when technical lapses affect genuine attempts at compromise.

To illustrate, the leniency shown by the courts and tribunals in direct withdrawals in the interest of justice, without strictly following the process through the resolution professional, has been nullified, resulting in procedural obstacles that make resolution costlier, lengthier and more uncertain.

Consider the instances: (1) non-signing of the form FA by the original operational creditor even after satisfaction of its claim; and/or (2) when the IRP, instead of filing the application of withdrawal on receiving the form FA under regulation 30-A, proceeded to constitute the CoC, where substance was given priority over form to allow withdrawal.

Mixed judicial approaches

Although the Glas Trust approach signifies judicial evolution towards enhanced transparency and stakeholder inclusivity, it also highlights potential downsides, where extensive judicial scrutiny risks the opening of a Pandora’s box. The National Company Law Appellate Tribunal’s ruling in Sunil D Desai v Rajendra Jain reveals rejection of withdrawal under section 12A primarily because the proposed settlement involved only partial upfront payments and subsequent phased payments, despite the said commercial terms being acceptable to the concerned creditor. Equally, in Himanshu Singh v HDFC Bank, the NCLT rejected a settlement proposal even after full repayment by the borrower to the financial creditor, as another financial creditor had filed a claim.

The rulings like Sachin Malde v Hemant Nanji Chheda reflect positive judicial headway post-Glas Trust, aligned with the IBC’s purpose, emphasising the inherent powers of tribunals to close insolvency proceedings in situations where no other creditors exist or would be prejudiced. Such instances show that while procedural safeguards are important, absolute adherence without context can defeat the equitable goals of insolvency law.

While Glas Trust has carved a path to inclusivity and transparency, its operationalisation demands judicial nuance. Moving forward, the judiciary’s future challenge will be to harmonise Glas Trust’s procedural standards with the IBC’s underlying objectives, ensuring that procedural gatekeeping does not obstruct legitimate settlements. The legacy of Glas Trust must lie not in inflexible formalism but in shaping a responsive and equitable insolvency framework.

Siddhant Kant is a partner, Moulshree Shukla is a principal associate and Satyajit Bose is an associate at Shardul Amarchand Mangaldas & Co