Introduction

The landmark judgment in GLAS Trust Company LLC v. BYJU Raveendran (2024 INSC 811) rendered by the Supreme Court of India on October 23, 2024, marks a significant development in the interpretation and application of the Insolvency and Bankruptcy Code (IBC). This case revolves around the procedural intricacies and the scope of inherent powers under Rule 11 of the National Company Law Appellate Tribunal (NCLAT) Rules, 2016, in the context of withdrawing a Corporate Insolvency Resolution Process (CIRP).

The appellant, GLAS Trust Company LLC, challenged the decision of the NCLAT, which had approved a settlement between the Corporate Debtor, Think and Learn Pvt Ltd (operating as Byju’s), and the Board of Control for Cricket in India (BCCI). The core issue pertained to whether the NCLAT erred in utilizing its inherent powers under Rule 11 to sanction the settlement without adhering to the prescribed procedures under Section 12A of the IBC and Regulation 30A of the CIRP Regulations, 2016.

Summary of the Judgment

The Supreme Court, upon reviewing the case, held that the NCLAT had overstepped its bounds by invoking its inherent powers under Rule 11 of the NCLAT Rules, 2016, to approve a settlement without following the exhaustive procedural framework established under Section 12A of the IBC and Regulation 30A of the CIRP Regulations. The Court emphasized the importance of adhering to statutory provisions and underscored that inherent powers cannot be used to bypass established legal procedures.

Consequently, the Supreme Court set aside the NCLAT's impugned judgment, reinstating the Corporate Insolvency Resolution Process (CIRP) and directing the parties to comply with the prescribed legal framework for any future settlements or withdrawals. The Court also highlighted that the CIRP proceedings had transformed from a personal to a collective nature post-admission, necessitating broader stakeholder involvement beyond the original parties.

Analysis

Precedents Cited

The judgment extensively referenced pivotal Supreme Court decisions that shaped the understanding of CIRP procedures and the limits of inherent powers. Key among these were:

• Swiss Ribbons (P) Ltd. v. Union of India (2019): This case emphasized that once CIRP is initiated, the proceedings become collective (in rem), involving all creditors, thereby requiring a collective decision-making process.
• Lokhandwala Kataria Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP (2018): Here, the Court invoked its inherent powers under Article 142 to permit withdrawal post-admission, highlighting the necessity of balancing procedural compliance with justice.
• Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem (2018): The Court reiterated the need for Rule 8 under CIRP Regulations to account for withdrawals after the issuance of an invitation for expressions of interest, advocating for legislative amendments to streamline the process.
• Abhishek Kumar v. Dinesh Gupta (2022): This judgment confirmed that settlement processes must adhere strictly to the procedural frameworks established by statutory provisions, disallowing deviations through inherent powers unless absolutely justified.

Legal Reasoning

The Supreme Court's reasoning was anchored in the principle that statutory frameworks should not be circumvented by inherent powers unless there exists a significant lacuna or ambiguity. In this case, the Court observed that:

• The IBC, supplemented by specific regulations like Rule 30A, provides a detailed procedural roadmap for withdrawing CIRP post-admission.
• Rule 11 of the NCLAT Rules, which preserves inherent powers, cannot override or ignore the explicit provisions of the IBC and its regulations.
• The NCLAT's deviation from the established procedures, without sufficient justification, undermines the legislative intent of creating a predictable and orderly insolvency resolution framework.

By allowing the NCLAT to approve the settlement without adhering to Section 12A and Regulation 30A, the Court found that the Tribunal had breached the procedural mandates, thereby necessitating the intervention of the Supreme Court to uphold the rule of law and statutory compliance.

Impact

The judgment reinforces the sanctity of statutory procedures in insolvency resolution processes. It sets a clear precedent that inherent powers of appellate tribunals like the NCLAT are supplementary and cannot be exploited to bypass established legal protocols.

For future cases, this decision mandates that:

• Tribunals and courts must strictly adhere to the procedural frameworks outlined in the IBC and associated regulations when considering settlements or withdrawals of CIRP.
• Any deviation from prescribed procedures must be justifiable on grounds that align with the overarching goals of the IBC, such as maximizing asset value and balancing stakeholder interests.
• Stakeholders are assured of a more predictable and structured insolvency resolution mechanism, reducing uncertainties and potential abuses of inherent powers.

Complex Concepts Simplified

Conclusion

The Supreme Court's decision in GLAS Trust Company LLC v. BYJU Raveendran serves as a pivotal reinforcement of the procedural integrity within the insolvency resolution framework established by the IBC. By setting aside the NCLAT's impugned judgment, the Court underscored the non-overrideable nature of statutory procedures, ensuring that inherent powers are not misused to circumvent established legal protocols.

This judgment not only clarifies the boundaries of appellate tribunals' inherent powers but also fortifies the predictability and reliability of the IBC's insolvency mechanisms. Stakeholders can now proceed with greater confidence, assured that procedural adherence is paramount, thereby promoting a balanced and just resolution of corporate insolvencies in India.

As insolvency laws continue to evolve, this landmark decision will undoubtedly influence future jurisprudence, emphasizing the supremacy of legislative frameworks over discretionary judicial powers, and fostering a more structured and equitable insolvency resolution landscape.