Brief Overview:
Corporate Insolvency Resolution Process (“CIRP”) was reinstated after it was discovered that the earlier withdrawal had been obtained by fraud and suppression of material facts.
Technical Details:
1) Background: Homebuyers of the Corporate Debtor challenged the withdrawal of CIRP. They argued that the Interim Resolution Professional (“IRP”) falsely claimed that no Committee of Creditors (“CoC”) was formed, despite minutes of the CoC meeting being on record. Consequently, the CIRP was withdrawn without following the statutory mandate under Section 12A of Insolvency and Bankruptcy Code (“IBC”).
2) NCLAT’S decision of restoring CIRP: CIRP can be restored if its withdrawal is tainted by fraud, given that:
(a) Post-CoC withdrawal of CIRP must comply with Section 12A of the IBC, i.e. require 90% voting.
(b) Obligation is cast upon the IRP to identify, inform and give fair opportunity to all financial creditors whose claims are traceable in records of the Corporate Debtor.
JC takeaway:
1) Section 12A is a shield, not a checkbox – it protects creditor rights once the CoC is in place.
2) CIRP cannot be withdrawn without 90% CoC consent – no exceptions.
3) IRP must trace and involve all financial creditors – silence or exclusion is a serious lapse.
4) Fraud or suppression taints CIRP withdrawal – the process can, and will, be revived.
5) No room for procedural shortcuts – strict adherence to the law is non-negotiable.
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