GLAS TRUST COMPANY LLC VS BYJU RAVEENDRAN : CASE SUMMARY
The Supreme Court held in Glas Trust Company LLC Vs. Byju Raveendran Civil Appeal No. 9986 of 2024 that inherent powers under Rule 11 of NCLAT Rules cannot be invoked for withdrawal of CIRP proceedings, as detail procedure for withdrawal has been provided under IBC and regulations made thereunder.
BRIEF FACTS
Think and Learn Pvt Ltd, (Corporate Debtor) is a company engaged in the business of providing online educational services of which Byju’s Alpha Inc. was a 100% subsidiary company. Byju’s Alpha Inc availed a loan facility aggregating to approximately USD 1,200,000,000 under a credit and guarantee agreement dated 24 November 2021. The Appellant, GLAS Trust Company LLC, (Appellant) was the ‘Administrative Agent’ of all the lenders under this agreement and the ‘Collateral Agent’ for the secured parties. Under the terms of the Credit Agreement, the Corporate Debtor acted as a guarantor and issued a guarantee deed dated 24 November 2021 in favour of the appellant. The appellant, acting as the Administrative Agent of the lenders, issued a notice of demand dated 6 December 2023 to the Corporate Debtor, invoking the guarantee deed and demanding that the Corporate Debtor pay the requisite amount, but payment was not made.
It was alleged that Byju’s Alpha Inc. transferred USD 533 million to a hedge fund based in the United States. United States Bankruptcy Court, District of Delaware issued injunctive orders in respect of transferred USD 533 million.
On 23rd September, 2023, the Board of Control for Cricket in India (BCCI) filed Section 9 IBC Petition for initiating Insolvency Proceedings against Corporate Debtor, which was admitted by NCLT. Appellant also filed Section 7 application, wherein it was directed to file claim in the admitted Petition.
Glas Trust Company LLC filed appeal before NCLAT against disposal of Section 7 Petition. Think and Learn Ltd. (Corporate Debtor) also filed appeal against admission of Section 9 Petition. During pendency of appeal before NCLAT, Think and Learn Ltd. settled the matter with BCCI and paid the operational debt. The NCLAT invoking powers under Rule 11 of NCLAT Rules approved the settlement and set aside Section 9 proceedings.
Appeal was filed before the Supreme Court wherein the Supreme Court granted stay on order of the NCLAT and directed for deposit of Rs. 158 Crore in Escrow account. CIRP against Corporate Debtor was also revived.
FINDINGS OF THE SURPEME COURT
The Supreme Court observed that framework created by Rule 8 of the NCLT Rules and Section 12A of the IBC read with Rule 30A of the CIRP Regulations lays down an exhaustive procedure for the withdrawal of an application filed by creditors under Sections 7, 9, or 10 of the IBC. Withdrawal may be sought at four stages, all of which have a procedure prescribed under the existing framework
In cases where application under Section 7, 9 or 10 has not been admitted, Application under Rule 8 can be filed directly before the NCLT for withdrawal. At this stage the case is in personam between the Applicant and Respondent.
In cases where application has been admitted but CoC has not been constituted, application has to be filed through IRP. At this stage, the proceedings become in rem and NCLT has to hear all the relevant parties.
In cases where CoC has been constituted, Application has to be filed through IRP/RP after CoC approves withdrawal application with 90 % voting share.
In cases where expression of interest has been invited, the applicant must state the reasons for withdrawal at this belated stage.
The Supreme Court observed that inherent powers’ may be exercised in cases where there is no express provision under the legal framework. However, such powers cannot be exercised in contravention of, conflict with or in ignorance of express provisions of law.
The Supreme Court was of view that recourse to Rule 11 of the NCLAT Rules was not warranted in the present circumstances. As noted above, ‘inherent powers’ cannot be used to subvert legal provisions, which exhaustively provide for a procedure. To permit the NCLAT to circumvent this detailed procedure by invoking its inherent powers under Rule 11 would run contrary to the carefully crafted procedure for withdrawal. In the Impugned Judgement, the NCLAT does not provide any reasons for deviating from this procedure or the urgency to approve the settlement without following the procedure. The correct course of action by the NCLAT would have been to stay the constitution of the CoC and direct the parties to follow the course of action in Section 12A read with Regulation 30A of the CIRP Regulations 2016. This legal framework for such withdrawal was formulated after giving due consideration to the appropriate procedure for withdrawal and balancing it with the objectives of the IBC.
The Supreme Court observed that even if the procedural infirmity is kept aside, once the CIRP was admitted, the proceedings became collective, and all creditors of the Corporate Debtor became stakeholders and should have been heard.
The Supreme Court set aside the order of the NCLAT.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.
