The Supreme Court on Wednesday ruled in favor of US-based financial creditor Glas Trust, overturning the National Company Law Appellate Tribunal’s (NCLAT) decision to halt insolvency proceedings against Think & Learn, the parent company of Byju’s.
This judgment effectively dismissed the NCLAT’s earlier approval of a settlement between Byju Raveendran and the Board of Control for Cricket in India (BCCI), which had prompted the National Company Law Tribunal (NCLT) in Bengaluru to admit Byju’s into the Corporate Insolvency Resolution Process (CIRP).
The apex court’s decision clarified the legal framework NCLT and NCLAT must follow when handling settlements between creditors and corporate debtors once a company enters CIRP. The judgment stressed the importance of considering all stakeholders in such cases, sending the matter back to the NCLT, which will now hear all creditors before deciding on the validity of the settlement and whether Byju’s can be removed from CIRP.
Right of Creditors to Appeal Against CIRP Withdrawal
Byju Raveendran and BCCI had argued that Glas Trust could not challenge the NCLAT’s order since it was not a party to the settlement. The Supreme Court, however, rejected this claim, referencing Section 62 of the Insolvency and Bankruptcy Code (IBC), 2016. The court held that “any person aggrieved” by an NCLAT order could appeal, and Glas Trust, being a creditor, had a legitimate right to do so. Once CIRP is initiated, the case involves all creditors, making it a collective proceeding.
NCLAT’s Use of Discretionary Powers
The NCLAT had used its discretionary powers under Rule 11 of its Rules to approve the settlement between BCCI and Byju Raveendran, thereby halting CIRP. The Supreme Court critiqued this action, stating that the IBC provides a detailed framework for handling settlement and withdrawal, reducing the need for discretionary powers like Rule 11. The court emphasized that such powers should only be invoked where there is a gap in the law and not in cases where clear legal procedures exist.
Role of Suspended Management in Settlement
Once a company enters CIRP, its management is suspended, with a Resolution Professional (RP) taking control. In this case, Byju Raveendran, the former CEO of Think & Learn, entered into a settlement with BCCI without involving the RP, which the court found to be improper. The court ruled that any application for withdrawal must go through the RP, as they are responsible for managing the company’s insolvency proceedings.
NCLT’s Role in Assessing Settlements
The Supreme Court clarified that NCLT is not a mere formality in approving settlements once a company is under CIRP. All creditors must be heard, and the NCLT must carefully evaluate the facts before approving any settlement, particularly in cases where CIRP has already begun. The court reiterated that NCLT must exercise its judgment in such matters and cannot act as a “post office” rubber-stamping withdrawal applications without due scrutiny.
(With inputs from agency)
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