In a landmark decision reinforcing the procedural sanctity of India’s insolvency framework, the Supreme Court of India allowed the appeal filed by Glas Trust Company LLC, setting aside the National Company Law Appellate Tribunal’s (NCLAT) order dated 02.08.2024 which had stayed the Corporate Insolvency Resolution Process (CIRP) admitted by the National Company Law Tribunal against Think and Learn Private Limited (“Byju’s”) vide order dated 16.07.2024. Glas Trust Company LLC is a financial creditor of Byju’s.
The Judgement pronounced on 23.10.2024 by the Supreme Court, has far-reaching implications for thewithdrawal of CIRP under the Insolvency and Bankruptcy Code, 2016 (IBC).
The appeal was preferred by Glas Trust Company LLC when Byju’s reached a settlement with the Board of Control for Cricket in India (BCCI) while CIRP against Byju’s were underway and on the basis of this settlement the CIRP was stayed by the NCLAT.
Brief facts of the case
Byju’s was admitted to the CIRP in July 2024 after NCLT, Bengaluru admitted an insolvency petition filed by BCCI (Operational Creditor) under Section 9 of IBC. The petition was based on a default by Byju’s amounting to INR 158 crore, arising from its contractual obligations under a sponsorship agreement with BCCI.
Following the initiation of the CIRP, Byju’s preferred an appeal against the order passed by the NCLT. The NCLAT subsequently stayed the insolvency proceedings after accepting a settlement agreement between BYJU’s and BCCI.
This settlement was recorded based on an undertaking by Riju Ravindran, that the repayment of the ₹158 crore would be funded personally by Riju Raveendran, brother of Byju’s founder Byju Raveendran, ensuring that the funds were his personal assets and not from any financial creditor.
Thereafter Glas Trust Company LLC preferred an appeal against the said order passed by the NCLAT before the Supreme Court and the present judgement was pronounced.
Observations made by the Supreme Court
The Supreme Court observed and held that the parties did not follow the due process under Section 12A of IBC and Regulation 30A of the Insolvency Resolution Process for Corporate Persons, Regulations, 2016, for withdrawal of CIRP. The aforementioned section and regulation state that the once CIRP is initiated and the Committee of Creditors (CoC) is not formed, any withdrawal request of the CIRP must be routed through the Interim/Insolvency Resolution Professional (IRP) and submitted before the NCLT. In the event that the CoC is constituted before the application for withdrawal is made by the applicant, the application for withdrawal must have the approval of ninety percent of the members of the CoC.
However, in this case, even though the CoC had not been constituted, the request was improperly brought directly by the parties before NCLAT during the appeal preferred by Byju’s against the order passed by the NCLT which initiated the CIRP against them, thereby bypassing the statutory process.
Further, the Supreme Court in arriving at its decision relied on the judgement “Swiss Ribbons (P) Ltd.vs Union of India (2019) 4 SCC 17”. In this judgement the Court had held that CIRP, once initiated, becomes a “proceeding in rem”—affecting the rights of all creditors/stakeholders—rather than a mere matter between the debtor and a specific creditor. Hence, once CIRP has been admitted the rights of all stakeholders have to be protected.
The Supreme Court found that the settlement between BYJU’s and BCCI was improperly handled as the withdrawal request was made directly to NCLAT during the appeal, rather than being presented to the NCLT through the IRP. This is done when the CIRP has been admitted and the CoC had not been constituted, as required by the IBC and Regulation 30A of the Insolvency Resolution Process for Corporate Persons Regulations, 2016.
On this basis, the Supreme Court set aside NCLAT’s order dated 02.08.2024, which had stayed the CIRP and allowed the settlement between Byju’s and BCCI.
While the Court did not rule on the merits of the settlement, it granted the parties liberty to follow the correct procedure laid out in the IBC for the withdrawal of CIRP. Additionally, the Court ordered that INR 158 crore, currently held in escrow by BCCI, be transferred to the CoC, which was constituted during the Supreme Court proceedings. The CoC is required to maintain this sum in a separate account, pending further directions from the NCLT.
As a result, the NCLT’s earlier order dated 16.07.2024 was restored, meaning the CIRP will continue and the moratorium under Section 14 of the IBC remains in effect.
Implications of the Judgment
This judgment clarifies that once a CIRP is initiated, individual settlements cannot by pass the statutory framework. Further, it reinforces the principle that CIRP is not merely a tool for debt recovery but a comprehensive process designed to protect the interests of all stakeholders.
By setting aside NCLAT’s order, the Supreme Court reaffirmed that CIRP, once initiated, is governed by a strict legal framework, and any deviation from this process undermines the fairness and transparency that the IBC seeks to uphold.
Contributed by Nishant Kantawala.
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