Supreme Court sets aside NCLAT order stopping insolvency process against Byju’s

Deciding the appeal by GLAS Trust Company LLC, the three-judge bench presided by Chief Justice of India D Y Chandrachud said it finds “considerable force” in its argument that NCLAT erred in invoking its inherent powers under Rule 11 of the NCLAT Rules in the presence of a prescribed procedure dealing with the withdrawal of CIRP. The top court also found several procedural flaws in NCLAT’s approach. The court noted that on July 31, 2024, when the parties sought to place the settlement on record before NCLAT, the Committee of Creditors (CoC) had not been constituted, although CIRP had been initiated.

Setting aside the NCLAT order, the SC also directed that the Rs 158 crore, along with accrued interest, if any, be deposited with CoC, which the court said shall maintain the amount in an escrow account until further developments.

The SC bench, also comprising Justices J B Pardiwala and Manoj Misra, said in its judgment, “In such cases, the legal framework mandates that an (i) application for withdrawal be moved; (ii) the application has to be moved through the Interim Resolution Professional; and (iii) it be placed before the NCLT for approval” but “none of these requirements were met in the present case”.

“First and foremost, there was no formal application instituted to seek the withdrawal of the CIRP. The settlement agreement was taken on record and approved by the NCLAT based on the submissions and assurances of the counsel before it and the affidavits/undertakings filed by the parties. Further, the first respondent (Byju Raveendran and his brother, Riju Raveendran), who is a former director of the Corporate Debtor (Think and Learn Pvt Ltd), did not move the application through the IRP and instead approached the NCLAT directly. Finally, the request to approve the settlement was moved before the NCLAT during appellate proceedings, instead of being placed before the NCLT,” said the court.

“Despite these grave deviations, NCLAT still proceeded with approving the settlement and setting aside the CIRP by invoking its inherent power under Rule 11 of the NCLAT Rules,” the court added. “We are of the view that recourse to Rule 11 of the NCLAT Rules was not warranted in the present circumstances… Inherent powers cannot be used to subvert legal provisions, which exhaustively provide for a procedure.”

The court added in the impugned judgement, “NCLAT does not provide any reasons for deviating from this procedure or the urgency to approve the settlement without following the procedure”. The SC also said the concerns raised by the appellant regarding the source of the Rs 158 crore which Riju Raveendran had agreed to pay, apparently from his “personal funds”, to BCCI “were not adequately addressed by NCLAT.”