Introduction:

In a recent decision, the Telangana High Court dismissed a writ petition filed by Mandava Holdings Private Limited challenging the rejection of its One-Time Settlement (OTS) proposal by PTC India Financial Services Limited. The petition aimed to stop the ongoing Corporate Insolvency Resolution Process (CIRP) initiated under the Insolvency and Bankruptcy Code (IBC), asserting that the rejection failed to consider the Reserve Bank of India (RBI) framework for compromise settlements. Justice Moushumi Bhattacharya, while addressing the matter, reinforced the supremacy of the IBC as a self-contained code to resolve insolvency proceedings and rejected the petitioner’s attempt to bypass the statutory mechanisms in place.

Arguments of Both Sides:

The petitioner, represented by Senior Counsel Avinash Desai, argued that PTC India Financial Services Limited, the sole financial creditor, acted arbitrarily in rejecting its OTS proposal. The petitioner claimed that the rejection contravened the RBI framework for compromise settlements and that the absence of a board-approved policy to evaluate such offers rendered the rejection invalid. It further contended that the approved resolution plan should be set aside to reconsider the OTS proposal, originally made in 2018 and rejected in 2023. The petitioner highlighted that its OTS offer could have resolved the financial dispute without resorting to CIRP, thus ensuring a more expedient resolution.

On the other hand, the respondents, represented by Senior Counsels S. Niranjan Reddy and Vivek Reddy, argued that the CIRP process had already commenced under the IBC and that any disputes related to insolvency proceedings should be addressed by the National Company Law Tribunal (NCLT) as per Section 60(5) of the IBC. They contended that the petitioner’s claims were an attempt to derail the CIRP and defeat the objective of the IBC to provide a time-bound resolution. Furthermore, the respondents emphasized that the RBI framework for OTS does not mandate creditors to consider or accept such offers, particularly when the matter is governed by the IBC. The rejection of the OTS offer was justified, and the approval of the resolution plan followed due process under the IBC.

Court’s Judgment:

Justice Moushumi Bhattacharya dismissed the writ petition, reaffirming the principles enshrined in the IBC. The Court emphasized that once a company enters CIRP, the proceedings transform into collective actions with public ramifications, governed exclusively by the IBC. The judgment highlighted several critical issues raised in the petition:

Firstly, the Court noted that the petitioner delayed its approach to the Court without providing any reasonable explanation. The OTS proposal was rejected in 2023, yet the writ petition was filed only after the resolution plan was approved in 2024. This delay, coupled with the multiple OTS proposals submitted during the pendency of the writ petition, indicated an attempt to stall the CIRP process and obstruct the realization of funds through a resolution plan.

Secondly, the Court clarified that the RBI framework does not confer any enforceable rights on the petitioner under the IBC. Referring to the Supreme Court’s decision in Bharti Airtel Limited, the Court emphasized that the IBC is a self-contained code, and any legal rights must be traced exclusively to its provisions. The RBI guidelines, while offering a framework for OTS proposals, do not override the statutory mechanisms of the IBC.

Thirdly, the Court rejected the petitioner’s argument that the absence of a board-approved policy for dealing with OTS proposals invalidated the rejection of its offer. It held that no provision in the RBI framework mandates creditors to consider or approve such proposals. The absence of a policy at the time of rejection does not undermine the validity of the decision, especially since the rejection itself precluded any compromise settlement under the IBC once the CIRP had commenced.

Finally, the Court addressed the maintainability of the writ petition, holding that the petitioner had an alternative remedy under the IBC. Section 60(5) of the IBC vests the NCLT with exclusive jurisdiction to adjudicate disputes arising from insolvency proceedings. Moreover, Section 238 of the IBC provides an overriding effect over other statutes, rendering the RBI framework subordinate to the IBC in cases of conflict. The Court noted that the petitioner’s failure to avail itself of the statutory remedy under the IBC further undermined the maintainability of the writ petition.

The judgment underscored that once an entity is admitted into CIRP, the proceedings become collective, requiring the approval of at least 90% of the Committee of Creditors (CoC) for any withdrawal under Section 12A of the IBC. The petitioner’s attempt to negotiate solely with the financial creditor was inconsistent with the collective nature of the CIRP process. Relying on the Supreme Court’s decision in GLAS Trust Company LLC v. BYJU Raveendran, the Court reiterated that the IBC prioritizes the resolution of insolvency in a time-bound manner, and any attempt to bypass its provisions undermines this objective.

In conclusion, the Court dismissed the writ petition, affirming that the IBC is the sole framework for resolving disputes arising from insolvency proceedings. It held that the petitioner’s claims lacked merit and that the appropriate forum for redressal was the NCLT.