In this case, the National Company Law Appellate Tribunal (“NCLAT”) permitted the exit or withdrawal from the Corporate Insolvency Resolution Process (“CIRP”) even after the appointment of an Interim Resolution Professional (“IRP”) and the imposition of a moratorium.
By: Nishtha Srivastava, 4th year BBA LLB Corporate Laws, UPES Dehradun.
- The Respondent who was also the Operational Creditor of the petitioner company filed an application for the initiation of the corporate insolvency resolution process under section 9 of the IBC,2016, to recover the monetary claims against the Corporate Debtor.
- Thereafter on May 27, 2020, the NCLT accepted the application and appointed the insolvency resolution professional as per section 16 of IBC, 2016. It also imposed a moratorium as per section 14 of the Code.
- Before the committee of creditors could be constituted as per section 21 which gives 30 days for such a constitution from the date of appointment of IRP, the dispute got cordially settled between both the parties wherein they finally accepted Rs 4,25,00,000 as the final claim amount.
Thereafter, a settlement agreement was entered between them on July 7, 2020, which if failed, would give the operational creditor the right to cause revival and initiation of the CIRP again.
- Thus, the corporate debtor moved an appeal to the Appellate Tribunal1 to get the order of granting moratorium, and the initiation of CIRP passed on May 27, 2020, quashed.
Whether out of court settlement agreement between the parties can be valid against the CIRP as per the IBC,2016?
The Court, in this case, while relying on the findings of the court in Swiss Ribbons Pvt. Ltd. vs. Union Of India2 and Rule 11 of the NCLAT Rules, 2016, not only permitted the withdrawal of the CIRP order previously passed by the NCLT but also stated that even the terms and conditions of the agreement of settlement entered between both the parties must be disposed of. However, in case of any default by the corporate debtor regarding the terms and conditions of the settlement agreement, it shall be the right of the operational creditor to move for insolvency proceedings in the NCLT.
Rule 11 of NCLAT Rules, 2016
Sections 14, 16 and 21 of the Insolvency and Bankruptcy Code, 2016.
Although the court relied upon a precedent to come to this conclusion, the IBC ordinance 2020 had been brought in by the government to save the corporate debtors from CIRP in the unprecedented times of the pandemic which has caused huge losses to their business, but now these insolvency procedural sections have been suspended.
This suspension exists for the next six months with a proposal to extend the same up to one year.
Thus, this suspension in the time of economic crisis along with this judgment will help in paving way for the revival of the economic condition of the country amid the gloom brought by the pandemic.
- 2020 SCC OnLine NCLAT 582
- 2019 SCC OnLine SC 73