No Provision In IBC For Re-Opening Of CIRP, A Petition Can Only Be Restored For Fresh Admission In Case Settlement Fails: NCLT Mumbai

“This bench feels that if the words “to reopen the Corporate Insolvency Resolution Proceedings in accordance with Law” are interpreted to imply resumption of CIRP automatically on default, the Hon’ble NCLAT would have rather stayed the CIRP process for the period during which settlement amount was to be paid than to order the closure of CIRP. Further, the words “in accordance with the law” clearly suggest that the reopening of the proceedings has to be in accordance with the provisions of the code and not otherwise.”

Background Facts

Amluckie Investment Company Limited (“Financial Creditor”) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Skill Infrastructure Limited (“Corporate Debtor”). On 15.03.2021 the NCLT initiated CIRP against the Corporate Debtor.

Subsequently, the Parties entered into Settlement Agreement on 23.03.2021. The Suspended Director of the Corporate Debtor challenged the order dated 15.03.2021 before the NCLAT. On 05.04.2021, the NCLAT closed the CIRP against the Corporate Debtor in view of the settlement entered between Parties. The NCLAT order further stated as under:

“only the part payment has been made towards satisfaction of full and final claim of the Financial Creditor in terms of the Settlement Agreement and the balance payment is agreed to be paid as per the schedule indicated hereinabove. In the event of default on the part of the Corporate Debtor in adhering to the terms of schedule, Respondent-Financial Creditor shall be at liberty to approach the Adjudicating Authority to reopen the Corporate Insolvency Resolution Process Proceedings in accordance with Law”.

However, the Corporate Debtor could not honour the Settlement Agreement since the post-dated cheques given to the Financial Creditor were dishonoured.

The Financial Creditor filed an Interlocutory Application in the Section 7 petition, seeking revival of CIRP against the Corporate Debtor. It was argued that the NCLAT had given liberty to the Financial Creditor to re-open the CIRP if the Corporate Debtor fails to adhere to the settlement.

NCLT Verdict

This Bench opined that the NCLAT had closed the Section 7 Petition thus the CIRP stood closed. The words “to reopen the Corporate Insolvency Resolution Proceedings in accordance with Law” only warrants restoration of Section 7 petition for fresh admission, because the IBC does not contain any provision for reopening of CIRP once it is stood concluded at one point of time.

The Bench held that the words “to reopen the Corporate Insolvency Resolution Proceedings in accordance with Law” cannot be interpreted to imply resumption of CIRP automatically on default, otherwise the NCLAT would have rather stayed the CIRP for the period during which settlement amount was to be paid instead of closure of CIRP.

“This bench feels that if the words “to reopen the Corporate Insolvency Resolution Proceedings in accordance with Law” are interpreted to imply resumption of CIRP automatically on default, the Hon’ble NCLAT would have rather stayed the CIRP process for the period during which settlement amount was to be paid than to order the closure of CIRP. Further, the words “in accordance with the law” clearly suggest that the reopening of the proceedings has to be in accordance with the provisions of the code and not otherwise.”

The Section 7 petition has been restored by the Bench in view of the default occurred in view of Settlement Agreement.

Case Title: Amluckie Investment Company Limited v Skill Infrastructure Limited

Case No.: CP (IB) No.834/MB-IV/2020

Counsel For Applicant: Mr. Sandeep Bajaj Adv.

Counsel for Respondent: Mr. Rohit Gupta a/w Mr. Mantul Bajpai and Ms. Priyam Shrma adv.

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