Setback to Byju, SC reverses NCLAT order closing insolvency proceedings

A bench headed by Chief Justice DY Chandrachud and also comprising Justices JB Pardiwala and Manoj Misra set aside the judgement of the NCLAT dated 2 August.

"We allow the present appeal and set aside the impugned judgement of the NCLAT dated 2 August 2024 in the above terms. At this stage, it would not be appropriate for this Court to adjudicate on the objections of the appellant to the settlement agreement on merits. The issues raised are the subject matter of several litigations in different fora, including the Delaware Court and investigations by various authorities, including the Enforcement Directorate, which are pending," the top court said.

"During the course of the proceedings before this Court, the CoC has been constituted. The parties are at liberty to invoke their remedies to seek a withdrawal or settlement of claims in compliance with the legal framework governing the withdrawal of CIRP. Nothing in this judgement should be construed as a finding on the conduct of any of the parties or other stakeholders involved in the insolvency proceedings," the top court said.

The amount of Rs 158 crore, along with accrued interest, if any, which has been maintained in a separate escrow account pursuant to the Order of this Court dated 14 August 2024, is to be deposited with the CoC. The CoC is directed to maintain this amount in an escrow account until further developments and to abide by the further directions of the NCLT, the top court said.

The court was hearing the Glas Trust Company LLC plea challenging the NCLAT order. Earlier, NCLAT had allowed the settlement between Byju Raveendran and the BCCI.

The appeal was raised from a judgement of the National Company Law Appellate Tribunal, Chennai, dated 2 August 2024.

The National Company Law Tribunal, Bengaluru, admitted the application instituted by the second respondent under Section 9 of the Insolvency and Bankruptcy Code and initiated the corporate insolvency resolution process against the third respondent.

In the exercise of its powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, the NCLAT approved a settlement in relation to the dues payable to the third respondent by the second respondent and set aside the order of the NCLT.

The appellant, who claims to be a financial creditor, had moved an application before the NCLAT objecting to the approval of the settlement and questioned the source of the funds for the settlement.

The objections of the appellant were rejected by the NCLAT in the impugned judgement. The present appeal raises substantial questions about the legal framework governing the withdrawal of a CIRP, the settlement of claims after the admission of an application instituted by a debtor, and the scope of the inherent powers vested in the NCLAT under Rule 11 of the NCLAT Rules.

Think and Learn Pvt Ltd., a company engaged in the business of providing online educational services, is the corporate debtor. The first respondent, Byju Raveendran and his brother, Riju Raveendran are former directors of the corporate debtor.

The second respondent, the Board of Control for Cricket in India (BCCI), is an operational creditor who executed a 'Team Sponsor Agreement' dated 25 July 2019 with the corporate debtor, which relates to the sponsorship of the Indian National Cricket Team.

On account of an alleged default under the credit agreement, the appellant enforced the security in respect of the loan and took a series of steps that resulted in the removal of all pre-existing directors of Byju's Alpha Inc., including Riju Raveendran and the appointment of a new sole director. The appellant contends that despite these measures, defaults persisted in payment of the principal outstanding amount and the interest accrued under the credit agreement.

On September 23, 2023, the second respondent, BCCI, moved a petition under Section 9 of the IBC in respect of an operational debt of approximately Rs 158 crore payable by the corporate debtor under the team sponsor agreement. The NCLT admitted the petition on 16 July 2024 and initiated CIRP.

"We are of the 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 top court said.

"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 top court said. (ANI)