National Company Law Appellate Tribunal, New Delhi: A Division Bench comprising of Ashok Bhushan,* J., and Barun Mitra (Technical Member), has held that the withdrawn CIRP process can be restored against the Corporate Debtor when the consent terms entered between the parties include a revival clause in case any default is committed by the Corporate Debtor.
Factual Matrix
In the instant matter, the appellant-Financial Creditor filed a S. 7 Insolvency and Bankruptcy Code, 2016 (IBC) application before the Adjudication Authority alleging a default and a consent term was executed between the appellant and the respondent. An application under S. 12-A IBC was preferred by the suspended director of the Corporate Debtor for withdrawal of S. 7 IBC application/Company Petition based on the consent terms and the same was allowed vide order dated 09-02-2022. The respondent after the withdrawal of the Company Petition defaulted in making payment and as a result the appellant preferred an application before the Adjudication Authority for the revival of the CIRP proceedings against the Corporate Debtor in the Company Petition. The Adjudication Authority, vide order dated 21-12-2022, rejected the appellant’s application and observed that there is no specific provision anywhere in the IBC for reopening of the Company Petition, when the same is withdrawn after settlement. Aggrieved by the impugned order passed by the Adjudication Authority, the appellant preferred the present appeal before the NCLAT challenging the same.
Parties’ Contentions
The appellant contended that-
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The consent term clearly stipulated that the settlement shall be cancelled, and company petition can be revived in the event of default,
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The consent term provided for revival of company petition in the event of default,
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No liberty was granted by the Adjudicating Authority in the order dated 09-02-2022 on account of settlement.
The respondent contended that no error was committed by the Adjudicating Authority in rejecting the application for revival of the company petition.
NCLAT’s Observation
The NCLAT observed that there are two separate categories (1) when withdrawal simplicitor make a statement that parties have settled, and (2) when withdrawal simplicitor bringing the settlement on record and the present case falls in the category where settlement has been brought on record.
The NCLAT observed that the Adjudicating Authority has committed an error in rejecting the revival application preferred by the appellant when the consent term itself contemplates a clause for revival in event of default. The NCLAT further observed that there is no need for specific liberty in the Adjudicating Authority’s order when the consent term is the basis of the said order, and the consent terms provide for such remedy.
The NCLAT remarked that the Adjudicating Authority itself in its order noticed the existence of consent terms as the same was the part of the S. 12-A IBC application. The NCLAT opined that,
“…when the consent term itself contemplates a clause for revival in event of default and default having been committed by the Corporate Debtor, rejection of revival is to deny the Financial Creditor rightful remedy. Non-mention of specific liberty in the Order is inconsequential in view of the clear terms in the settlement which was the basis of withdrawal of Company Petition.”
NCLAT’s Verdict
While allowing the present appeal, the NCLAT set aside the impugned order passed by the Adjudicating Authority and held that the Company Petition is revived before the Adjudicating Authority to proceed in accordance with law.
[IDBI Trusteeship Services Ltd. v. Nirmal Lifestyle Ltd., 2023 SCC OnLine NCLAT 225, order dated 15-05-2023]
*Judgment by Justice Ashok Bhushan
Messiah of the sufferers: Bidding adieu to Justice Ashok Bhushan
Advocates who appeared in this case :
Mr. Krishnendu Datta (Senior Advocate), Mr. Pranjit Bhattacharya and Mr. Raj Sarit Khare, Counsel for the Appellant;
Mr. Kunal Vajani, Mr. Kunal Mimani, Mr. Kartikey Bhatt, Mr. Shubhang Tandon, Counsel for the Respondent.
