Author: Hemant Tiwari, IME Law College, Sahibabad, Ghaziabad
Introduction
The spectacular rise to elevation and eventual fiscal débâcle of suppose & Learn Private Limited( T&L), the parent company of the ed- tech mammoth BYJU’S, is a story that has captured a lot of attention in India’s commercial world. The legal fight that came to the Supreme Court in GLAS Trust Company LLC v. BYJU Raveendran &; Ors.( 2024) is a turning point, not really as to BYJU’S bankruptcy but as to the IBC principles and the procedural saintship of the Insolvency and Bankruptcy Code, 2016( IBC). This paper comprehends the Supreme Court verdict that rejected in firm tones the NCLAT’s unauthorized use of power to give its blessing to a private agreement therefore circumventing the obligatory pullout from the Commercial Bankruptcy Resolution Process (CIRP). The decision demolishes the idea of the IBC as a brief law which aims to guard the interests of the creditors as a group and which puts the observance of the procedure ahead of the wisdom of a bilateral deal.
Abstract
In GLAS Trust Company LLC v. BYJU Raveendran & Ors.( 2024), the Supreme Court rendered a corner decision concerning the NCLAT’s capacity to use its essential powers under Rule 11 of the NCLAT Rules, 2016 to assent to the CIRP pullout on the ground of a private agreement. It all began with the court admitting the operation for bankruptcy against T&L, filed by an functional creditor( BCCI), followed by an agreement that got the NCLAT’s blessing, therefore it reversed the order of the inauguration of the CIRP. GLAS Trust Company LLC, a fiscal creditor, filed a solicitation against this move, asserting that the agreement disregarded the procedural safeguards of Section 12A of the IBC which stipulates 90 blessing of the Committee of Creditors (CoC). The Supreme Court supported GLAS Trust’s point of view and decided that the essential powers of the court cannot set aside the statutory vittles and therefore the Court emphasized that the CIRP is closest to a sacred in rem proceeding which is in the nature of law where it’s collaborative creditor interests that are dominant.
Highlights of Legal Points
Supremacy of Statutory Procedure The main point of the decision is that the detailed procedural frame for the CIRP pullout set out in Section 12A of the IBC and Regulation 30A of the CIRP Regulations, 2016 is complete. The NCLAT’s essential powers under Rule 11 cannot be used to circumvent the statutory vittles laid down by the law.
CIRP as a Proceeding in Rem The court decision points out again that the CIRP is the process that took place after the admission of the case and therefore the particular disagreement that was there has turned into an in rem case which has an impact on all the stakeholders. Groups of creditor- debtor agreement cannot be replaced by the individual bone.
Obligatory CoC blessing for Withdrawal The Court was of the opinion that the pullout of the CIRP can only be done after the admission of the case and this has to be followed by the four- stage frame laid down by the Regulation 30A indeed if it’s done before the CoC conformation and it has to be approved by at least 90 of the CoC’s voting share after the CoC has been constituted.
Right of All Creditors to Challenge The Supreme Court held that a fiscal creditor similar as GLAS Trust is in the position to challenge an agreement on the grounds that it damages collaborative creditor interests and that it breaches procedural laws indeed if the creditor is n’t a direct party to the agreement.
Avoidance of Preferential agreements strict compliance with Section 12A largely avoids preferential agreements in which one creditor benefits disproportionately.
The Court ordered that the plutocrat paid by BYJU’S to BCCI as the agreement be kept in the escrow account of the CoC.
Case Background and Line
A. The Genesis of Insolvency
The legal saga began when the Board of Control for Cricket in India( BCCI), an functional creditor, filed an operation under Section 9 of the IBC before the National Company Law Tribunal( NCLT), Bengaluru, against suppose & Learn Pvt. Ltd.( T&L) for an overdue functional debt of roughly ₹ 158 crore related to a backing agreement. The NCLT accepted the operation and started the Commercial Bankruptcy Resolution Process (CIRP).
B. The resemblant Creditor GLAS Trust Company LLC
Meanwhile, GLAS Trust Company LLC, as the executive agent for the lenders to T&L’s US attachment, BYJU’S Alpha Inc., held the significant fiscal claims performing from a USD 1.2 billion term loan. Being a fiscal creditor, GLAS Trust tried to file a request for CIRP under Section 7 of the IBC. The NCLT rejected the request on the ground that the CIRP has formerly been initiated grounded on BCCI’s operation. GLAS Trust was permitted to submit its claim to the Interim Resolution Professional (IRP).
C. The Controversial agreement and NCLAT’s Intervention
Before the Committee of Creditors (CoC) got homogenized, BYJU’S promoters made a private agreement with BCCI in which the latter’s debt was cleared. Latterly, T&L filed a solicitation with the NCLAT challenging the NCLT’s CIRP inauguration order. NCLAT, using its natural powers under Rule 11 of the NCLAT Rules, 2016, gave the green light to the agreement, thereby setting aside the CIRP order and effectively terminating the bankruptcy process without following the statutory pullout procedures.
D. The Supreme Court Challenge
GLAS Trust Company LLC took the case to the Supreme Court. In its solicitation to the Supreme Court, the NCLAT was indicted of trespassing its boundaries by the use of essential powers to dodge the obligatory conditions of CIRP pullout. It was contended that this action has led to the detriment of other creditors, in particular, fiscal creditors like GLAS Trust.
II. Legal Framework and bills
The case revolved around the interpretation of the main vittles of the IBC and associated rules.
A. The Insolvency and Bankruptcy Code, 2016(IBC)
The IBC is the central Indian law that governs commercial bankruptcy. It pledges adherence to a time- bound resolution which aims at maximizing the value of means, at promoting new business and at balancing the interests of all stakeholders.
Applicable Section/ Regulation & Key Provision
Section 7 A Financial Creditor may initiate a CIRP.
Section 9: A functional Creditor may initiate a CIRP.
Section 12A: Pull-out of operation admitted under Section 7, 9 or 10. It’s tentative upon the aspirant’s request and the concurrence of the CoC by 90 of the voting share.
Section 21: The Committee of Creditors (CoC) conforming substantially of fiscal creditors is constituted.
Regulation 30A request for Withdrawal of a CIRP. The rules for commercial persons under the Insolvency and Bankruptcy Board of India, 2016, specify four stages for pull-out.
NCLAT Rules, 2016
Rule 11(essential Powers) It allows the NCLAT to issue similar orders as may be necessary to serve justice or to help the abuse of the process. The main point of the disagreement was whether this general power could stamp the specific IBC procedures.
III. Supreme Court’s logic and Legal Analysis
The Supreme Court dealt with the two main points the extent of the NCLAT’s essential powers and the obligatory nature of the CIRP pullout procedure.
A. The compass of essential Powers (Rule 11)
The Court expressed the view that essential powers under Rule 11 are supplementary in nature and should n’t be used to replace the vittles of IBC.
Proof Point as the Supreme Court put it in 2024,” It would be out of sync with the precisely designed pullout procedure of the CIRP to allow the NCLAT to bypass the detailed procedure by simply invoking its essential powers under Rule 11.”
Section 12A is a point that’s veritably easily against the in rem nature of CIRP and thus needs to be followed rigorously.
The NCLAT’s intervention under Rule 11 to grease a private agreement without the court abandoning the plan laid down in Section 12A and Regulation 30A was n’t only illegal but also amounted to a violation of the IBC frame.
B. The saintship of Collaborative Creditor Interests
The Supreme Court emphasized that the IBC is a paradigm shift in the way the focus is put on the recovery of individual debts to the resolution of the debt inclusively.
Transformation in Rem the rights of individual creditors are absorbed in the collaborative CoC rights once the CIRP is underway. Therefore, operations similar as pullout should be done in a way that safeguards all the stakeholders and not only the parties settling.
Protection against Preferential Treatment: The condition of 90 CoC blessing for a pullout given in Section 12A is a protection against any arbitrary or preferential agreement that could lead to other creditors being left out of the deal. The NCLAT’s go- ahead was a show of support for BCCI without checking the fiscal creditors.
Status of GLAS Trust Being a stakeholder in the honored CIRP, GLAS Trust was entitled to raise its voice against any procedural violations that hinder the collaborative rights.
C. Directives on the agreement quantum
The Court commanded that the plutocrat amounting to ₹ 158 crores as an agreement between BYJU’S and BCCI should be with the IRP or CoC in an escrow account to be made available for distribution after the completion of the resolution process. BYJU’S was permitted to follow the proper way laid down in Section 12A to withdraw from the CoC.
IV. Landmark Case Laws and Precedents
The decision of the Supreme Court is grounded on the corner IBC case laws and precedents.
Swiss Lists Pvt. Ltd. v. Union of India( 2019) 4 SCC 17 The apex court in this case verified the IBC’s conformity with the constitution including the 90 CoC threshold as the condition for pullout under Section 12A therefore putting an end to the debate about collaborative creditor decision- timber.
Significance: The high pullout threshold is a legislative measure meant to cover the collaborative interests and not to be bypassed by courts.
Essar Steel India Ltd. Commission of Creditors v. Satish Kumar Gupta (2020) 8 SCC 531 This case emphasized the main end of the IBC being resolution and maximization of value for all stakeholders rather than single- creditor debt recovery.
Significance It corresponds with a GLAS Trust decision that agreements are to be used as a means of icing fairness to the collaborative and IBC should n’t be turned into a private expedient tool.
Vallal RCK v. M/ s. Siva diligence and effects Limited (2022) SC Online SC 781: It brought clarity on the CIRP stages and, besides that, refocused to judicial restraint in the IBC procedural aspects.
Importance: Courts are needed to follow the procedural design of the IBC.
V. Global and Market Impact
A. Buttressing the IBC Framework
The GLAS Trust verdict is an enhancement to the bankruptcy frame in India as it requires the observance of the IBC way. It limits similar powers as essential ones when a specific law is available, thereby giving further stability, and icing the same resolution processes will be followed in different cases.
B. Multi-Jurisdictional Complexity
The BYJU’S matter is riddled with issues of jurisdictional nature as well as questions of law and fact arising from the action brought by GLAS Trust in the US courts concerning the contended fraudulent transfers. The Supreme Court’s order to keep the CIRP going is a reflection of the difficulty in harmonizing the Indian bankruptcy with the foreign bones that’s necessary for debtors having means across the globe.
C. Enhanced Creditor Confidence
The Court, by giving first precedence to the observance of the procedural rules and collaborative rights, therefore brings about an enhancement in the fiscal creditors’ trust in the system of justice in India and at the same time allows foreign investors and credit requests to work in a more stable way.
Conclusion
The Supreme Court’s ruling in GLAS Trust Company LLC v. BYJU Raveendran & Ors. (2024) highlights how the Insolvency and Bankruptcy Code (IBC), introduced in 2016, should be understood and applied. The decision clearly states that the only proper way to close a case is by using Section 12A and following Regulation 30A. This serves as a safeguard to stop misuse of power and ensure that the proper resolution process is followed. The core purpose of the IBC, as shown by this ruling, is to quickly and fairly resolve insolvency cases, while maintaining the health of the credit system. For BYJU’S, this means the current process will continue, and the Committee of Creditors will take the next steps — either resolving the situation or selling the assets — through a fair and transparent process.
FAQS
Q1: What is the main legal point from the Supreme Court’s decision?
A: The main point is that the NCLAT cannot use its powers to approve secret deals or stop the Corporate Insolvency Resolution Process (CIRP) without obtaining 90% approval from the creditors under Section 12A of the IBC.It is essential to follow the prescribed procedures.
Q2: Why did GLAS Trust Company LLC challenge the BCCI agreement?
A: GLAS Trust challenged the agreement because it was approved without the knowledge or consent of all creditors. This appeared to be giving special treatment to some creditors, which could harm others and conflict with the protections provided by the IBC.
Q3: What does it mean for the CIRP to be a proceeding in rem?
A: A proceeding in rem means that it affects all interested parties.Once CIRP begins, the debtor’s position changes, and the rights of all stakeholders are grouped together. This public legal process cannot be overridden by private agreements.
Q4: What parts of the IBC are discussed in this case?
A: The main parts of the IBC discussed in this case are Section 12A (dissolution of the case with creditor approval), Regulation 30A (rules for dissolving the case), and Rule 11 of the NCLAT Rules (powers of the appellate authority).The court emphasized that Section 12A and Regulation 30A take precedence over general powers.
Q5: What happened to the money BYJU’S paid to BCCI?
A: The court directed BCCI to transfer the ₹158 crores from the BYJU’S agreement into an account managed by the Interim Resolution Professional (IRP) or the Committee of Creditors (CoC).This money can then be used to settle all the creditors’ claims during the CIRP.
