Source: The Indian Express 

Introduction 

The Supreme Court has overturned the National Company Law Appellate Tribunal's (NCLAT) decision that had ended insolvency proceedings against ed-tech giant Byju's. The case involved a Rs 158 crore settlement dispute between Byju's and the Board of Control for Cricket in India (BCCI). The Supreme Court found that NCLAT had incorrectly used its inherent powers to allow withdrawal of the insolvency application, stating that proper procedures weren't followed.  

What is the Insolvency and Bankruptcy Code (IBC) ? 

• About: 
  • The Insolvency and Bankruptcy Code (IBC) was enacted in India in 2016 to streamline the process of insolvency resolution and bankruptcy.  
  • It aims to consolidate and amend laws related to insolvency and bankruptcy for individuals, partnerships, and companies. 
  • The IBC provides a structured framework for the timely resolution of insolvency cases, ensuring that creditors can recover their dues efficiently. 
• Features of IBC: 
  • Time-Bound Process: The IBC mandates a time-bound process for the resolution of insolvency cases, typically within 180 days, extendable by another 90 days. 
  • Insolvency Professionals: The code introduces the role of insolvency professionals who manage the insolvency resolution process and represent the interests of creditors. 
  • Committee of Creditors: A committee of creditors is formed to make decisions regarding the resolution plan, ensuring that the interests of all stakeholders are considered. 
  • Liquidation Process: If a resolution plan is not approved, the IBC provides a framework for the liquidation of assets to repay creditors. 
  • Cross-Border Insolvency: The IBC also has provision of cross-border insolvency issues, allowing for cooperation between jurisdictions. 

What is Insolvency? 

• About: 
  • Insolvency is a financial condition where an individual or organization cannot pay off their debts as they become due.  
  • It is a critical stage that can lead to bankruptcy if not resolved. Insolvency can arise from various factors, including poor financial management, economic downturns, or unexpected expenses. 
• Types of Insolvency: 
  • Personal Insolvency: This occurs when an individual is unable to meet their personal debt obligations. It can lead to personal bankruptcy if the debts are not resolved. 
  • Corporate Insolvency: This refers to a situation where a company cannot pay its debts. Corporate insolvency can lead to restructuring or liquidation under the IBC. 

What is the Background of GLAS Trust Company LLC v. BYJU Raveendran & Ors. Case? 

• Parties Involved: 
  • Think and Learn Pvt Ltd (BYJU'S) - The Corporate Debtor 
  • GLAS Trust Company LLC - The Appellant (Administrative Agent for lenders) 
  • BCCI - Second Respondent (Operational Creditor) 
  • Byju Raveendran and Riju Raveendran - First Respondents (Former directors) 
• Key Financial Arrangements: 
  • BCCI executed a Team Sponsor Agreement with BYJU'S in July 2019 
  • BYJU'S Alpha Inc. (US subsidiary) obtained a loan of USD 1.2 billion under a credit agreement in November 2021 
  • BYJU'S acted as guarantor for this loan 
• Sequence of Events:  
  • Insolvency Proceedings: 
    • BCCI filed Section 9 petition for operational debt of Rs. 158 crores 
    • NCLT admitted the petition on 16th July, 2024 
    • Th CIRP was initiated and IRP appointed 
  • Settlement Attempt: 
    • Riju Raveendran offered settlement to BCCI through personal funds 
    • Settlement proposed payment in three tranches 
    • NCLAT approved the settlement and set aside NCLT order 
  • Legal Challenges: 
    • Delaware Court proceedings regarding USD 533 million transfer 
    • Appellant challenged NCLAT's settlement approval in Supreme Court 
    • Supreme Court stayed NCLAT's order on 14th August, 2024 
• Current Status: 
  • CIRP proceedings resumed after Supreme Court stay 
  • IRP constituted CoC (Committee of Creditors) with four financial creditors 
  • Supreme Court directed status quo on CoC meetings 
• Issues Raised: 
  • Locus Standi: 
    • Whether the appellant (non-party to settlement) has standing to challenge the proceedings 
    • Procedural Validity: 
    • Whether NCLAT could invoke inherent powers under Rule 11 despite existing withdrawal procedure under Section 12A of IBC 
  • Discretionary Power Exercise: 
    • Whether NCLAT adequately addressed appellant's objections while exercising discretionary power under Rule 11 
• Court Observation  
  • Final Decision:  
    • The Supreme Court allowed the appeal and set aside NCLAT's judgment dated 2nd August 2024. 
  • Jurisdiction and Scope: 
    • The Court refrained from adjudicating on appellant's objections to the settlement agreement on merits 
    • Noted that issues are subject matter of multiple litigations in different forums:  
      • Delaware Court proceedings 
      • Enforcement Directorate investigations 
      • Other pending matters 
  • Current Status and Future Actions:  
    • CoC Constitution: 
      • CoC has been constituted during these proceedings 
      • Parties have liberty to:  
        • Seek withdrawal 
        • Pursue settlement of claims 
        • Must comply with legal framework governing CIRP withdrawal 
• No Prejudice: 
  • Judgment should not be construed as finding on conduct of any parties 
  • Rights of stakeholders in insolvency proceedings preserved 
  • Financial Directions: 
  • Rs. 158 crore plus accrued interest to be:  
    • Transferred from current escrow account 
    • Deposited with CoC 
    • Maintained in an escrow account by CoC 
    • Subject to further NCLT directions 
• Procedural Closure: 
  • Civil appeal disposed of 
  • Special leave petition disposed of 
  • All pending applications disposed of 

Insolvency Process Under the Insolvency and Bankruptcy Code (IBC) 

About:  

• The Insolvency and Bankruptcy Code (IBC) is a significant piece of legislation in India that aims to consolidate and amend the laws relating to insolvency and bankruptcy for individuals, partnerships, and companies. 
• The IBC was enacted in 2016 to provide a comprehensive framework for the resolution of insolvency and bankruptcy cases in a time-bound manner.  
• The code applies to corporate entities, individuals, and partnerships, establishing a clear process for resolving insolvency issues. 

Process of Insolvency  

• Initiation of Insolvency Proceedings 
  • Insolvency proceedings can be initiated by either the debtor or the creditor. The process begins with the filing of an application before the National Company Law Tribunal (NCLT) for corporate insolvency resolution or the Debt Recovery Tribunal (DRT) for individual insolvency. 
• Admission of Application 
  • Upon receiving the application, the NCLT or DRT will assess its admissibility. If the application is admitted, an interim resolution professional (IRP) is appointed to manage the affairs of the debtor and oversee the resolution process. 
• Moratorium Period 
  • Once the application is admitted, a moratorium is declared, which prohibits any legal proceedings against the debtor. This period allows the IRP to stabilize the company’s operations and prepare for the resolution process without external pressures. 
• Formation of Committee of Creditors (CoC) 
  • The IRP will constitute a Committee of Creditors (CoC) comprising all financial creditors. The CoC plays a crucial role in the decision-making process regarding the resolution plan and the management of the debtor's assets. 
• Resolution Plan Submission 
  • The IRP invites resolution plans from interested parties. The CoC evaluates these plans based on their feasibility and viability. A resolution plan must be approved by at least 66% of the CoC members. 
• Approval of Resolution Plan 
  • Once a resolution plan is approved by the CoC, it is submitted to the NCLT for final approval. If the NCLT approves the plan, it becomes binding on all stakeholders. 
• Liquidation (if applicable) 
  • If no resolution plan is approved within the stipulated time frame (typically 180 days, extendable by another 90 days), the company may enter liquidation. In this case, the assets of the debtor are sold off to repay creditors. 

Conclusion 

The Supreme Court's ruling ultimately reinforces that proper legal procedures must be followed in settlement cases, particularly when dealing with the NCLT's jurisdiction. By dismissing GLAS Trust's appeal, the court has established that settlements approved through correct channels should be respected, even in complex corporate insolvency matters.