Suhani and Dhwani are childhood friends and were very fond of designing Indian traditional dresses. After completing their schooling, Suhani joined a fashion designing course to pursue her interest and Dhwani decided to

CS Professional · Insolvency and Bankruptcy - Law and Practice · PYQS · June 2024
Suhani and Dhwani are childhood friends and were very fond of designing Indian traditional dresses. After completing their schooling, Suhani joined a fashion designing course to pursue her interest and Dhwani decided to be a fashion Model. She participated in various fashion show programs conducted by Non-Government Organisation(s) engaged in the creating awareness for cervical cancer which is spreading rapidly among Ladies in India. After some years, in one of the fashion programmes, they met again and planned to form a private Limited Company in the name of Suhani Fashions Private Limited having a paid-up share capital of ₹ 5 Crore and became Entrepreneurs. Suhani Fashions Pvt. Ltd. is engaged in the business of Manufacturing and Selling Ladies Suits and Sarees in Kolkata, West Bengal which is a very big market for Indian traditional dresses. They also offered their products on online e-commerce platforms. They employed more than 100 Ladies and other staff in their workshop who were engaged in designing, cutting, tailoring and other allied works. Suhani also used to design products being sold by the company. Both Suhani and Dhwani were Promoter Directors of the company as per the Article of Association of the company and also the subscribers to the Memorandum of Association of the company by subscribing 50% shares each in the company. Dhwani, being a fashion model, did modelling for her products in order to improve the sales of the company. The company started growing very fast and sales touched a figure of ₹ 20 crores in the very first year and in order to meet the working capital and other requirements, the company approached the bankers Beta bank and Gama Bank for a facility of ₹ 3 crores and ₹ 5 crores respectively. The Company already had taken the credit facilities with Alpha Bank and outstanding amount is ₹ 6 crores. After the change in demand of the products and growing need of Formal dresses from the Indian traditional dresses, sales started declining and the company started facing cash crunch and made a default in paying the instalments for ₹ 2 crores which were outstanding in the name of the Alpha bank. The Alpha bank decided to file an Insolvency Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial Creditor on 3rd January, 2024. The Corporate Insolvency Resolution Process application was admitted by the Adjudicating Authority on 25th January, 2024. Moratorium was declared and Ishann was appointed as an Interim Resolution Professional. Ishaan, Interim Resolution Professional made a public announcement and prepared a list of creditors based on the claims received. The CoC is yet to be formed. Consider the above facts and answer the following questions: State the provisions of Insolvency and Bankruptcy Code for withdrawal of application admitted under section 7, 9 and 10 by the applicant. Can it be withdrawn after its admission but before the constitution of CoC. Explain with the help of the case laws.

Answer & Explanation:

Section 12A of the Insolvency and Bankruptcy Code 2016 provides that the Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified. Before admission of the application, however, the Adjudicating Authority may permit withdrawal of the application made under Rules 4, 6 or 7, as the case may be, on the request of the applicant under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Form FA given under Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is required to be filed for withdrawal of the CIRP. Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that an application for withdrawal under section 12A may be made to the Adjudicating Authority (a) before the constitution of the committee, by the applicant through the interim resolution professional or (b) after the constitution of the committee, by the applicant through the interim resolution professional or the Resolution Professional, as the case may be. Provided that where the application is made under clause (b) after the issue of invitation for expression of interest under regulation 36A, the applicant shall state the reasons justifying withdrawal after issue of such invitation. In the matter of Ms. Ashish Ispat Private Limited Vs. Primuss Pipes & Tubes Ltd., NCLAT held that when a withdrawal application under section 12A of the Code is filed prior to constitution of CoC, the requirement of 90% vote of CoC is not applicable, and the Adjudicating Authority has to consider the application without requiring any approval from CoC. Approval of 90% shall be applicable only when Committee of Creditors is constituted and withdrawal application under section 12A of Insolvency and Bankruptcy Code, 2016 has been filed post that.

Topics: Corporate Insolvency Resolution Process (CIRP)

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