Knocking the doors of Hon’ble National Company Law Tribunal once again after withdrawal of Insolvency Petition – By Achint Gupta

Knocking the doors of Hon’ble National Company Law Tribunal once again after withdrawal of Insolvency Petition

– By Achint Gupta, practicing advocate having expertise in corporate and commercial laws

This paper talks about the legal proposition enunciated by the Hon’ble National Company Law Tribunal and Appellate Tribunal on an aspect of restoration of insolvency petition when no liberty of court was sought at the time of withdrawal of petition.

It is often noticed before the co-ordinated benches of National Company Law Tribunal (NCLT) that insolvency petition is filed on account of default in payment of debt, and soon thereafter, corporate debtor settles the matter with petitioner in order to avoid rigours of insolvency proceedings. Upon settlement, the petitioner makes statement before the Hon’ble NCLT for withdrawal of petition and the matter is disposed off after recording such statement. Later, the corporate debtor breaches the payment terms agreed in settlement and petitioner wishes to restore its insolvency petition. In such event, a question comes up before the Hon’ble NCLT, i.e., whether insolvency petition that has been withdrawn (as settled) without leave to revive, can be restored?

This question was hotly contested before the Hon’ble National Company Law Appellate Tribunal (NCLAT) and as well as co-ordinate benches of National Company Law Tribunal in various matters and finally settled by judicial precedents making it as a statement of the law. Few of such judicial precedents are discussed hereunder:

 A. NATIONAL COMPANY LAW APPELLATE TRIBUNAL

1. SRLK Enterprises LLP v Jalan Transolutions (India) Ltd. (2021) ibclaw.in 189 NCLAT (NCLAT New Delhi 08.04.2021)

In this matter, the Hon’ble NCLAT, New Delhi Bench upheld the order of NCLT/Adjudicating Authority, New Delhi Bench (Court II) whereby the Adjudicating Authority rejected the I.A. to recall the earlier order of disposal of insolvency petition.

The financial creditor in this matter filed an insolvency petition under section 7 of the Insolvency and Bankruptcy Code, 2016 (IB Code) against the corporate debtor which was admitted. Later on, there was compromise between parties before the constitution of committee of creditors and in view of it, the insolvency petition was withdrawn. It was submitted by the financial creditor that only 4 cheques were honoured and rest were not cleared, hence the financial creditor moved Adjudicating Authority with I.A. to get its original insolvency petition restored by recalling the earlier order of disposal. The Hon’ble NCLAT noted that the Adjudicating Authority while disposing of the said I.A. held that:

 “……..We notice that vide order dated 09.05.2019 passed by this Bench, the petition (IB)-1721(ND)2018 was withdrawn at the instance of the Financial Creditor and the CIRP was terminated. We further notice that no liberty was given to the Petitioner to revive the application. So, considering this, we are of the considered view that since this Adjudicating Authority was not the part of the settlement arrived in between the parties, rather the settlement was arrived outside the Tribunal. It was on the submissions of the Applicant, the main petition was dismissed as withdrawn and the CIRP was terminated. Therefore, we have no reason to recall our earlier order. Accordingly, the prayer of the Applicant to recall the earlier order is hereby rejected.”

(Underlined supplied)

The Hon’ble NCLAT while upholding the said order passed by the Adjudicating Authority, observed as follows:

“….There is difference between withdrawal simplicitor making statement that parties have settled. It is different when bringing the settlement on record, and making it a part of the Order of withdrawal[,] liberty is taken and brought on record to restore the proceedings in case of default. IBC is not a recovery proceeding where because the money or part of it has not come, the party may repeatedly come to the Court. Adjudicating Authority has rightly observed that no liberty to revive was there and so declined to interfere. The Appellant would be at liberty to pursue other remedies in law.”

 2. Himadri Foods Ltd. v Credit Suisse Funds AG (2021) ibclaw.in 08 NCLAT (NCLAT 07.01.2021)

This appeal arose out of the impugned Order dated 16.10.2020 passed by the adjudicating authority, Mumbai Bench-II in M.A. 3601/2019 in insolvency petition being CP(IB)No.389/MB.II/2019 whereby the Adjudicating Authority allowed the restoration / revival of original petition.

The said petition was disposed off earlier in view of the settlement arrived at between the parties after taking settlement terms on record. Later on, non-compliance with the settlement terms triggers the filing of M.A. by the petitioner seeking restoration of original petition which was, as stated, allowed by the Adjudicating Authority.

In the appeal, the impugned Order was assailed on the ground that restoration could not be allowed by invoking Rule 11 of the NCLT Rules, 2016. The Hon’ble NCLAT while rejecting the said ground, observed as follows:

“It appears that the Terms of Settlement providing a repayment schedule was incorporated in the order thereby making it an order/ decree of the Court and once this was the position, giving liberty to the Financial Creditor to come back can be interpreted on no hypothesis other than that the revival of CIRP would be sought for non-compliance with the Terms of Settlement.”

B. NATIONAL COMPANY LAW TRIBUNAL

3. Pawan Putra Securities Private Limited v Wearit Global Limited (2022) ibclaw.in 217 NCLT (NCLT Kolkata Bench 24.02.2022)

In this matter, the main petition was filed under section 7 of the Insolvency and Bankruptcy Code, 2016. Subsequently, the parties reached to a settlement wherein the corporate debtor agreed to pay a fixed sum to financial creditor by way of RTGS fund transfer in regular instalments from time to time. Pursuant thereto, insolvency petition was dismissed as withdrawn. However, the corporate debtor did not repay the sum as agreed in settlement, hence the I.A.(IB) 271/KB/2021 was filed by financial creditor, inter alia, seeking restoration of main petition. The Adjudicating Authority observed that:

“On perusal of the order dated 31 January, 2020, liberty was not sought to restore the Petition in case the settlement failed on the day the withdrawal was prayed for. The withdrawal had been allowed pursuant to a settlement agreement between the Applicant and the Respondent and in terms of the settlement agreement and not a withdrawal simpliciter. Allowing such a contention that a petition cannot be revived if no liberty/leave of the Court has been sought, would cause injustice to a creditor who has diligently exercised his rights and filed the Company Petition and thereafter this restoration petition

(Underline supplied)

The Adjudicating Authority allowed the I.A. to the extent of restoring the insolvency petition to the stage at which it was withdrawn.

 4. G. Sreevidhya v Karismaa Foundations Private Limited (2022) ibclaw.in 158 NCLT (NCLT Chennai Bench 15.02.2022)

This I.A. was filed under Rule 11 of NCLT Rules, 2016, inter alia, seeking revival of the original insolvency petition.

Earlier, in this matter, CIRP was commenced in respect of the corporate debtor and IRP was appointed. During the pendency of CIRP, a memorandum of compromise was entered into between parties, and hence, an application was filed for withdrawal of insolvency petition which was allowed. Accordingly, order of initiation of CIRP was recalled and the petition was dismissed as withdrawn.

Subsequently, certain cheques given in terms of settlement were dishonoured and payment was not made as agreed in memorandum of compromise. As per the memorandum of compromise, submitted by petitioner, parties agreed to revive the insolvency proceedings or initiate any other legal proceedings against corporate debtor in case of default in terms of memorandum of compromise. Accordingly the I.A. was filed for restoration of the original insolvency petition.

While adjudicating upon the said I.A., the adjudicating authority noted that the petitioner has not reserved his right to restore the original petition in case of any default arises. Though the Adjudicating Authority recorded in its Order of withdrawal that it has been agreed among the parties that if post-dated cheques are dishonoured, the financial creditors are at liberty to initiate CIRP against the corporate debtor and prayer of withdrawal of petition was allowed in the light of the agreements signed between the parties, but, it was viewed that neither the Order of withdrawal records the liberty to petitioner nor the right was reserved in memorandum of compromise to restore the original petition in case of any default occurs, and since no merit was found, the said I.A. was dismissed. It was noted by the Hon’ble Adjudicating Authority that Clause 4 of the memorandum of compromise records that in case of a default occurs, the right of the financial creditor is restricted only to initiate a fresh insolvency proceeding against the corporate debtor. Liberty to initiate CIRP has been construed as initiation of fresh proceedings in the light of Clause 4 of memorandum of compromise. 

Thus, it is no more res integra that the withdrawal simplicitor does not warrant restoration unless accompanied by liberty to restore or the settlement terms are recorded in the Order of tribunal making it as a decree of court. However, depending upon the facts and circumstances of each case, decision of Hon’ble NCLT may vary. To avoid any scope for contestation, it would be always useful to seek liberty of court and to get the right to restore reserved in the Order of withdrawal itself.

 

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