Sole Financial Creditor Can't Entertain Request For One-Time Settlement Once CIRP Proceedings Have Commenced: Telangana High Court

Telangana High Court has dismissed a Writ petition filed by Mandava Holdings Private Limited challenging the rejection of the one-time settlement (OTS) proposal offer made to PTC India Financial Services Limited so as to stop CIRPC proceedings without considering the RBI framework for compromise settlement and technical write-offs.The petitioner contended that PTC India Financial Services Limited was wrong in approving the resolution plan without considering the settlement offer and prayed that the rejection letter issued in 2023 be set aside and consequently reconsider the proposal of OTS. Justice Moushumi Bhattacharya who was seized of the matter noted that once insolvency proceedings were initiated against an entity, the IBC code is the sole statute to deal with any disputes arising thereof.“Therefore the petitioner's argument that an applicant (the petitioner herein/Corporate Debtor) can withdraw from the CIRP at any point of time without any strings attached is simplistic, to say the least. The effect of the withdrawal would undo what cannot be undone before the NCLT. The withdrawal would also unsettle a binding settlement between the CoC and the Successful Resolution Applicant (R.3).”The bench pointed out a myriad of issues in the Writ petition. Firstly, the Bench pointed out that a one-time settlement offer was made to respondent number one in 2018. In 2023 the OTS proposal was rejected following this in July of 2024 the resolution plan was put forward for consideration, and in the same month it was approved by the committee of creditors. The bench noted that despite there being a considerable delay in approaching the court the petitioner failed to list out any reasons for the delay. The Court noted that this, indicative of the petitioner trying to stall the IBC proceeding. Relying on various Supreme Court judgements the bench further reiterated that the primary object of the IBC is to resolve CIP proceedings in a time-bound manner “Further, the multiple OTS proposals given by the petitioner during pendency of the writ petition may be seen as an attempt to derail the CIRP and defeat realization of the funds through the CIRP.”The second issue that answered, was, whether the RBI regulations could create new rights for the Corporate debtor, which were not contemplated under the IBC code. The bench emphasized that the IBC is a self-contained code and any party seeking any right must trace it only through the code.“It is settled law that the IBC is a self-contained Code. In the scheme of such an enactment, a party would have to trace its legal right to the mechanisms, time frames and the relief provided for in the Code itself.”Referring to the supreme court judgment in Bharti Airtel Limited the bench clarified that even the principle of set-of as stipulated in the CPC could not be claimed against an entity undergoing insolvency. Thirdly, the bench correcting the petitioner's argument that the respondent is bound to have a board-approved policy to deal with OTS proposals, held, that no way in the RBI framework does it mandate the creditor to consider the proposal for a time settlement. Thus concluded that not having a board approved policy at the time of rejection will not undermine the rejection anyway. “Therefore, not having a Board-Approved Policy at the time of rejection of the petitioner's OTS would not undermine the rejection since the rejection itself precluded any compromise settlement between the petitioner and the respondent No.1 after 30.10.2023.”Fourthly, the bench also dwelled on the question of whether a writ petition would be maintainable when an alternate remedy is already provided under the IBC code. The bench held that section 60(5) of the IBC code makes the National Company law Tribunal the appropriate authority to deal with any disputes arising out of insolvency proceedings and that the appropriate remedy for the petitioner would be to approach the National Company law Tribunal. The bench clarified that section 238 of the IBC code introduces a non obstante clause which has an overriding effect over other statutes.“The Court is therefore of the view that the petitioner has an alternative remedy within the framework of the IBC and has fallen short of giving reasons for refusing to avail of the effective statutory remedy. “Coming back to the question of whether a sole financial creditor can entertain an OTS once the corporate debtor enters CRIP, the bench, relying on section 12A of the IBC noted that once CIRP proceeding have been admitted the proceeding is converted into one of in Rem, and that the approval of at least 90% of the CoC would be required.“Under the IBC, once an entity is admitted in CIRP, the proceeding before the NCLT is transformed from a single or two party proceeding into one in rem i.e., a collective proceeding with public ramifications. This means that if any entity wants to withdraw the CIRP, it would have to obtain the approval of the entire CoC in accordance with...

Sole Financial Creditor Can't Entertain Request For One-Time Settlement Once CIRP Proceedings Have Commenced: Telangana High Court

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