The decision of the Supreme Court in GLAS Trust Company LLC vs. BYJU Raveendran & Ors. ¹, addressed several critical issues relating to the settlement of claims under the Insolvency and Bankruptcy Code, 2016 (“IBC” or “the Code”) post commencement of corporate insolvency resolution process (“CIRP”), specifically dealing with the rights of creditors to intervene in a settlement of a corporate debtor and the permissibility of use of the inherent powers of the National Company Law Appellate Tribunal (“NCLAT”) in case of settlements covered by regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). 

On July 16, 2024, the National Company Law Tribunal (“NCLT”) admitted a section 9 insolvency petition filed by Board of Control for Cricket in India (“BCCI” or “Operational Creditor”) against Think and Learn Private Limited (“Corporate Debtor” or “Byju’s”), for unpaid dues of Rs. 158,00,00,000 (Rupees One Hundred and Fifty-Eight Crores). Separately, GLAS Trust Company LLC (“Financial Creditor”), sought claims related to a USD 1.2 billion loan taken by Byju’s subsidiary in the US, Byju’s Alpha Inc. and guaranteed by the Corporate Debtor. 

Shortly after the commencement of CIRP proceedings, on July 30, 2024, Riju Raveendran, former director of the Corporate Debtor, proposed to personally settle the operational debt owed to the BCCI in 3 (Three) tranches. Subsequently, on August 02, 2024, the NCLAT approved the settlement and allowed withdrawal of BCCI’s petition, sparking objections from the Financial Creditor. 

The Financial Creditor appealed before the Supreme Court of India, opposing the approved settlement between the Operational Creditor and Riju Raveendran, arguing that NCLAT improperly bypassed section 12A of the IBC and regulation 30A of the CIRP Regulations, which prescribe the Committee of Creditors (“CoC”) approval for the withdrawal of an application post-admission. The Financial Creditor argued that the National Company Law Appellate Tribunal (“NCLAT”) should have refrained from exercising its discretionary power under rule 11 of the NCLAT Rules, 2016 (“NCLAT Rules”) to sanction the settlement when there is a prescribed procedure for withdrawal and settlement under IBC. It was argued that the inherent powers of the NCLAT should not be exercised mechanically in cases where the withdrawal of the application would prejudice other stakeholders and may result in numerous other creditors filing insolvency actions against the corporate debtors on account of their unpaid dues. Further, the Financial Creditor flagged concerns about the settlement’s legitimacy, citing an injunction imposed by a court in Delaware, USA on the parties involved in the transaction including Riju Raveendran, on funds tied to alleged fraudulent transfers of USD 533 million by Byju’s Alpha Inc. to a U.S. hedge fund. 

The Supreme Court considered three key issues: whether the Financial Creditor, despite not being part of the settlement between the Operational Creditor and the Corporate Debtor, had the right to be heard; whether the NCLAT erred in using its inherent powers under rule 11 of the NCLAT Rules to approve the settlement, bypassing the prescribed withdrawal procedure under section 12A of the IBC; and whether the NCLAT adequately addressed the Financial Creditor’s objections. 

Drawing from the decision in Swiss Ribbons (P) Ltd. v. Union of India ², the Court noted that the IBC is not a debt recovery tool but a framework to ensure proportionate treatment for creditors of the same class.

The IBC discourages coercive practices and mandates collective decision-making in insolvency cases. Once an insolvency application is admitted, proceedings acquire a collective (in rem) nature, involving all creditors rather than only the parties initiating the application and corporate debtor. The Court highlighted that any settlement post-admission must consider all creditors’ interests, underscoring the collective spirit of the IBC. 

The Court traced the evolution of the legal framework for withdrawal and settlement. Initially, rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, allowed withdrawal only before admission. Post-admission, withdrawal was enabled via judicial intervention under Article 142 of the Constitution in cases like Lokhandwala Kataria Construction ³ and Uttara Foods & Feeds ⁴. Recognizing the need for codified procedures and legislative clarity, section 12A was introduced in 2018, permitting withdrawal post-admission with 90% of the CoC’s approval. In cases where the CoC was yet to be constituted, such as in Swiss Ribbons v. Union of India, the Supreme Court permitted the NCLT to use its inherent powers under rule 11 to allow withdrawals, provided it considered all relevant factors. Regulation 30A was later introduced to detail the process for withdrawal after CoC formation, further amended in 2019 to enable withdrawals through the Interim Resolution Professional (“IRP”) prior to CoC formation. This framework balances enabling settlements and safeguarding collective creditor interests, ensuring the insolvency process is not misused for individual recoveries. The Court underscored that settlements must align with the collective nature of insolvency proceedings, respecting the rights of all creditors. 

The Court held that NCLAT’s inherent powers under rule 11, are limited to cases where statutory provisions are silent. They cannot override or bypass express legal frameworks. In Swiss Ribbons v. Union of India, the Supreme Court permitted the use of rule 11 when a withdrawal application was sought before forming the CoC due to the absence of a detailed framework. Subsequent amendments, including section 12A and regulation 30A, introduced clear withdrawal procedures, eliminating the requirement to rely on inherent powers. 

The Supreme Court rejected the respondents’ claim that the Financial Creditor lacked locus standi, affirming that insolvency proceedings are collective and involve all creditors once admitted. It held that the NCLAT’s approval of a settlement bypassed objections about fund sources and alleged fraud, and its reliance on rule 11 undermined the mandatory withdrawal framework under section 12A of the IBC and regulation 30A of the CIRP Regulations. The NCLAT’s failure to route the settlement through the IRP and the NCLT rendered its actions procedurally flawed and inconsistent with the IBC. 

The Court emphasized that settlements must represent all creditors’ interests, ensuring fair treatment while preventing the misuse of insolvency as a debt recovery tool. Reiterating the importance of adherence to statutory procedures, the Court stressed that discretionary powers must align with IBC’s objectives, protecting creditor rights and maintaining procedural integrity. The decision clarifies that compliance with the provisions of regulation 30A of the CIRP Regulations in case of settlement after admission is mandatory and highlights IBC’s collective approach to insolvency. 

This article has been contributed by Oindrala Mondal, Associate, Citadel Law Chambers.