Consent Terms Can Only Be Legally Enforced If Ratified By Court: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, consisting of Justice Ashok Bhushan (Chairperson), Barun Mitra (Member - Technical) and Arun Baroka (Member - Technical), dismissed an appeal filed against an order passed by the NCLT, Jaipur. The bench held that once the entire debt had been liquidated by the corporate debtor, the corporate debtor could not be put into insolvency. The tribunal ruled consent terms can only be legally enforced if ratified by the court.Background United Futuristic Trade Impex Pvt. Ltd. filed an application under section 9 of the IBC for the recovery of an operational debt of Rs. 5.54 Cr., which included Rs. 92,59,040 as interest. The Adjudicating Authority found that the Corporate Debtor, Varaha Infra Ltd., had paid the principal sum of Rs. 4.61 Cr. Only the interest portion remained, which the Corporate Debtor promised to pay partly by the next month. However, the appellant continued to assert that the payments were inconsistent with the consent terms between the parties.The Adjudicating Authority reviewed the payments made and dismissed the section 9 application, stating that the corporate debtor had cleared the full debt. Aggrieved by the order of the Adjudicating Authority the appellant filed the appeal before the NCLAT.Contention of the PartiesThe appellant argued that during the pendency of the section 9 application, parties entered into the consent terms, and the payments have not been made in compliance with the consent terms. The appellant contended that the remaining amount had not been paid as per the consented terms; hence, the section 9 application should continue.The respondent contended that a total amount of Rs. 6.17 Cr. has already been paid to the appellant, which exceeds the operational debt of Rs. 5.54 Cr. The respondent argued that since the debt is fully settled, the application under section 9 cannot be sustained.NCLAT's JudgmentThe NCLT did not find any infirmity in the order of the Adjudicating Authority rejecting the section 9 application. The tribunal emphasized that since the debt has been fully cleared by the Corporate Debtor, it cannot be put into insolvency. While discussing the enforceability of the consent terms, the tribunal laid down that the Consent Terms lacked court approval and thus are not legally enforceable.Case Title: United Futuristic Trade Impex Pvt Ltd. v. Varaha Infra Ltd.Case Number: Company Appeal (AT) (Insolvency) No. 480 of 2025Tribunal: National Company Law Appellate Tribunal, Principal Bench, New DelhiJudge: Justice Ashok Bhushan (Chairperson), Barun Mitra (Member - Technical) and Arun Baroka (Member - Technical)For Appellant: Mr. Balaji Harish Iyer, Mr. Utkarsh Joshi, Ms. Kanishka Sharma, Advocates.For Respondent: Date of Order: 21.03.2025Click Here To Read/Download The Order

Consent Terms Can Only Be Legally Enforced If Ratified By Court: NCLAT New Delhi

Mohd.Rehan Ali

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