The last two years have been tumultuous for Think & Learn Pvt. Ltd., the parent company of the online education brand Byju’s. Now, Byju’s will continue to deal a bad hand with its creditors as the Supreme Court of India has sent it back to the insolvency tribunal in Bengaluru. The Supreme Court, in a detailed judgment passed in October 2024, set aside the order of the National Company Law Appellate Tribunal (“NCLAT”), which allowed an out-of-turn settlement between Byju’s and the Board of Cricket Control in India (“BCCI”). According to the Supreme Court, the NCLAT had overlooked the mandatory procedures laid down under the Insolvency and Bankruptcy Code, 2016 (“IBC”) when it allowed BCCI to withdraw its insolvency application based on the payments made to it while disregarding the dues of other creditors.
BCCI had filed an insolvency application before the National Company Law Tribunal (“NCLT”) under the IBC as an operational creditor. BCCI claimed that Byju’s failed to pay its dues under a sponsorship agreement for India's national cricket team. NCLT admitted Byju’s into insolvency and appointed an Interim Resolution Professional (“IRP”). However, before the IRP could constitute the Committee of Creditors (“CoC”), the promoters of Byju’s challenged the order of the NCLT, admitting it into insolvency, and simultaneously negotiated a settlement with BCCI to pay the dues. Based on the settlement agreed upon between the corporate debtor's promoters (Byju’s) and the operational creditor, NCLAT set aside the NCLT's order using its inherent powers and ended the insolvency proceedings against Byju’s. This order of the NCLAT was challenged before the Supreme Court by Glass Trust, the administrator for the US-based creditors of Byju’s and its affiliates.
The Supreme Court accepted the argument raised by Glass Trust that the NCLAT deviated from the processes laid down in Section 12A of the IBC and Rule 30A of the IBC (Corporate Insolvency Resolution Process) Rules. Those provisions specify the procedures to be adopted to settle and withdraw insolvency proceedings during its various stages. The Supreme Court noted that once a corporate debtor has been admitted into insolvency proceedings by the NCLT, the character of those proceedings shifts from in-personam proceedings between the corporate debtor and the applicant creditor to proceedings in rem, where all other creditors and stakeholders have a role to play in the resuscitation of the corporate debtor. The NCLAT acted erroneously when it ended the insolvency proceedings based on the undertakings from the promoters, as they were no longer in control of the corporate debtor. In the opinion of the Supreme Court, the IRP was in charge of the corporate debtor, and the proper method for the settlement was to move the NCLT through the IRP.
The IBC sets out the processes for settling and withdrawing insolvency proceedings. The Supreme Court has analysed the legacy issues regarding the withdrawal of insolvency applications and cited its own attempts to resolve those issues by recourse to its equity jurisdiction under Article 142 of the Constitution. This judgment of the Supreme Court contributes to streamlining these norms, thereby curbing the discretionary powers of the tribunals in abruptly ending the insolvency proceedings. It has also provided much-needed clarity regarding the roles of resolution professionals, COC and the NCLT while handling settlement of insolvency proceedings under the IBC regime.