Today, the Supreme Court overturned the National Company Law Appellate Tribunal's (NCLAT) decision that had halted insolvency proceedings against the troubled ed-tech company Byju's.
A bench consisting of Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra also annulled the NCLAT's approval of Byju's settlement of Rs 158.9 crore in dues with the Board of Control for Cricket in India (BCCI). The court directed the cricket board to deposit the settlement amount of Rs 158.9 crore with a committee of creditors.
The bench ruled that Glas Trust Company LLC, a U.S. firm, has the standing to intervene in corporate insolvency proceedings at the NCLT, NCLAT, and the Supreme Court as an affected party. The apex court criticized the NCLAT for disregarding established rules by halting the insolvency proceedings against the ed-tech firm, asserting that it improperly relied on its inherent powers.
"The NCLAT cannot be considered a post office that merely puts a stamp on the withdrawal application submitted by the parties to the corporate insolvency resolution process (CIRP),” the bench said, adding that the withdrawal plea should have been moved by the IRP (insolvency resolution professional) not by the corporate debtor or other parties.
The verdict addressed three key issues: First, whether the appellant (the U.S. firm), not a party to the settlement between the second respondent (BCCI) and the corporate debtor (Byju's), had the standing to participate in the proceedings before the Supreme Court. Second, whether the NCLAT was justified in exercising its special powers to allow the withdrawal of the Corporate Insolvency Resolution Process (CIRP) and facilitate the settlement of claims between the parties.
And the third issue stated, “Without prejudice to the above, whether the NCLAT adequately addressed the objections raised by the appellant (US firm) while exercising its discretionary power….”
The bench examined the development of legal provisions regarding the withdrawal of the Corporate Insolvency Resolution Process (CIRP) following the admission of a corporate insolvency application by a creditor. It noted that there is now a comprehensive procedure in place to address withdrawal or settlement at both stages after admission—specifically, before and after the committee of creditors (CoC) has been constituted.
“In view of this detailed framework, the requirement to invoke the discretionary power… of the NCLAT rules…or even the power of this (top) court under Article 142 no longer arises,” it held. It further said the application will be submitted by the IRP instead of the parties themselves.
“Therefore, the NCLAT does conduct an adjudicatory exercise when the application for withdrawal is placed before it, & the procedure is not a mere technicality,” it said.
The bench emphasized that circumventing this requirement would violate the framework of the Insolvency and Bankruptcy Code (IBC) and the fundamental principles outlined in the judgment. It highlighted that the IBC was never intended to allow the withdrawal of claims as a unilateral process, even after applications had been admitted and the Corporate Insolvency Resolution Process (CIRP) had commenced.
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