NCLT Mumbai Rules Sole Financial Creditor Cannot Withdraw Claim After Joining CoC; Must Carry CIRP to Logical Conclusion

NCLT Mumbai Rules Sole Financial Creditor Cannot Withdraw Claim After Joining CoC; Must Carry CIRP to Logical Conclusion

Introduction

The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that a sole secured financial creditor cannot withdraw its admitted claim after entering the Committee of Creditors (CoC) merely because recovery prospects appear low. The Tribunal emphasised that the Corporate Insolvency Resolution Process (CIRP) is a collective proceeding in rem and not a private recovery tool, and therefore a creditor cannot “jump in and jump out” of the process once the CoC is constituted.

Factual Background

The CIRP of Interbuild Infrastructure Pvt. Ltd. was initiated on 11 July 2023 on an application filed by the operational creditor Gujarat Enterprise. During the process, SREI Equipment Finance Ltd. filed its claim for ₹62.59 lakh on 23 August 2023, which was admitted by the Interim Resolution Professional. Upon admission, SREI became the sole secured financial creditor and the only member of the CoC with 100% voting share. Thereafter, citing poor recovery prospects and increasing CIRP costs, SREI sought to withdraw its claim in December 2023 and exit the CoC.

Procedural Background

The application came before a Bench comprising Judicial Member K.R. Saji Kumar and Technical Member Anil Raj Chellan. The issue before the Tribunal was whether, after admission of its claim and constitution of the CoC, the sole financial creditor could withdraw from the insolvency process and avoid CIRP costs and participation responsibilities.

Issues

1. Whether a sole financial creditor can withdraw its admitted claim after the constitution of the CoC.

2. Whether a creditor may exit CIRP on the ground of commercial non-viability or low recovery prospects.

3. Whether the IBC permits a sole CoC member to abandon the process before taking it to a logical conclusion.

Contentions of Parties

The applicant, SREI Equipment Finance Ltd., argued that continuing in the CIRP had become commercially unviable due to rising insolvency resolution costs and weak chances of recovery, and therefore it should be permitted to withdraw its claim and cease participation in the CoC.

The corporate debtor, Interbuild Infrastructure Pvt. Ltd., opposed the plea, contending that once the creditor had entered the CoC as the sole financial creditor, it was obligated under the Insolvency and Bankruptcy Code to continue with the resolution process.

Reasoning and Analysis

The Tribunal held that once a claim is admitted and the CoC stands constituted, there is no provision under the IBC permitting unilateral withdrawal of such claim by a financial creditor. The Bench underscored that CIRP proceedings are not debt recovery proceedings inter partes, but collective proceedings in rem, affecting all stakeholders of the corporate debtor.

The NCLT strongly disapproved the applicant’s attempt to withdraw based on recovery considerations, observing that creditors cannot treat CIRP as an optional recovery route where they may enter when beneficial and exit when prospects diminish. Such conduct, the Bench held, would defeat the structure and purpose of the Code, which seeks time-bound resolution of stressed assets.

The Tribunal further reasoned that where the applicant is the sole CoC member with complete voting control, the responsibility is even greater. It rejected the contention that SREI possessed any “commercial wisdom” or inherent right to withdraw, clarifying that commercial wisdom under the IBC pertains to decisions on resolution and liquidation, not abandonment of the process itself. The Bench therefore held that the applicant was duty-bound to carry the CIRP to its lawful conclusion, including taking decisions on appointment of the Resolution Professional and bearing CIRP-related costs.

Decision

The NCLT Mumbai dismissed the application filed by SREI Equipment Finance Ltd. seeking withdrawal of its claim and exit from the CoC. It directed that CoC meetings be convened forthwith and necessary decisions be taken regarding the appointment of a Resolution Professional so that the CIRP of Interbuild Infrastructure Pvt. Ltd. proceeds to its logical conclusion.

In this case the appellant was represented by Advocate Pawan Kulkarni i/b AVP Partners. Meanwhile the respondent was represented by Advocate Devul Dighe.