Disposed Petition On Consent Terms Can Be Revived On Breach Of Terms, Irrespective Of Liberty Granted Or Not : NCLAT Delhi
Pallavi Mishra
17 May 2023 8:30 AM GMT
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), while adjudicating an appeal filed in IDBI Trusteeship Services Limited v Nirmal Lifestyle Limited, has held that when a petition is withdrawn by placing on record the consent/settlement terms, then the petition is liable...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), while adjudicating an appeal filed in IDBI Trusteeship Services Limited v Nirmal Lifestyle Limited, has held that when a petition is withdrawn by placing on record the consent/settlement terms, then the petition is liable to be revived if consent terms provide for its revival in the event of default. The Bench has further held that it is inconsequential whether or not the NCLT has granted any liberty for revival, the petition is liable to be revived if consent terms placed on record contains a clause for revival.
Background Facts
IDBI Trusteeship Services 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 Nirmal Lifestyle Limited (“Corporate Debtor”).
During the pendency of the petition, a consent term was executed between the Financial Creditor and the Corporate Debtor, which recorded that in event of default, the settlement shall be cancelled and petition can be revived against the Corporate Debtor.
However, the petition was admitted on 05.08.2021 and CIRP was initiated against the Corporate Debtor. An appeal was filed before the NCLAT, whereby the NCLAT permitted the Suspended Director of Corporate Debtor to approach NCLT for withdrawal of petition under Section 12A of IBC. The constitution of CoC was stayed till the disposal of Section 12-A application.
The Interim Resolution Professional (“IRP”) filed an Application under Section 12A before the NCLT and the same was allowed on 09.02.2022. However, the order of NCLT did not grant any liberty to the Financial Creditor to revive the petition in the event of default.
After withdrawal of the petition, the Corporate Debtor failed to abide by consent terms. Consequently, the Financial Creditor filed an application for revival of its petition filed under Section 7 of IBC. On 21.12.2022, the NCLT rejected the application while observing that when the Petition was withdrawn after settlement, then there is no specific provision anywhere in the IBC for reopening of the Petition.
The Financial Creditor filed an appeal before the NCLAT.
NCLAT Verdict
Reliance was placed on the NCLAT judgment in SRLK Enterprises LLP v. JALAN Transolutions (India) Ltd., C.A. (AT) Ins. No. 294 of 2021, wherein a distinction has been made between withdrawal simplicitor by making a statement that parties have settled and bringing the settlement on record. A revival application would not be entertained when Parties merely make a statement that they have settled.
The Bench observed that the consent terms were placed on record before the NCLT since they were part of the Application under Section 12A of IBC. It was held that when consent term itself contains clause for revival, then it is inconsequential whether the NCLT granted any specific liberty for revival or not. The Petition will have to be revived on the default of consent terms.
The Bench opined that the NCLT erred in rejecting the revival application when the consent term itself contemplates a clause for revival of petition in event of default. It has been held as under:
“We thus in the facts of the present case are of the view that Adjudicating Authority committed error in rejecting the revival application 3196 of 2022 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.”
The petition under Section 7 of IBC has been revived before the NCLT.
Case Title: IDBI Trusteeship Services Limited v Nirmal Lifestyle Limited
Case No.: Company Appeal (AT) (Insolvency) No. 117 of 2023
Counsel for Appellant: Mr. Krishnendu Datta, Sr. Advocate, Mr. Pranjit Bhattacharya and Mr. Raj Sarit Khare, Advocates
Counsel for Respondent: Mr. Kunal Vajani, Mr. Kunal Mimani, Mr. Kartikey Bhatt, Mr. Shubhang Tandon, Advocates.
