Insolvency Proceedings Can Be Closed Based On Settlement Prior To CoC Formation : NCLAT [Read Judgment]
The National Company Law Appellate Tribunal has asked the Kolkata Bench of National Company Law Tribunal to close an insolvency proceeding by accepting the settlement arrived at between the Corporate Debtor and the Operational Creditor before the Constitution of the Committee of Creditors.
The Appellate Tribunal also found that there was a "pre-existing dispute" between the parties, and hence the application under Section 9 of the Insolvency and Bankruptcy Code was not admissible in the first place.
The appellate tribunal was hearing an appeal moved by Ashish Garodia, the Director and Shareholder of 'M/s. Garodia Automobiles Pvt. Ltd'. (Corporate Debtor) against the order dated January 14, 2019 passed by the Kolkata Bench of NCLT admitting the application under Section 9 IBC.
The appellant also pointed out thatThe parties had signed a settlement deed on January 31. However, by then, the Interim Resolution professional appointed by virtue of the NCLT Kolkata's order had constituted the committee of creditors which was supposed to hold its first meeting on February 12.
The NCLAT took note of the fact that there was a pre-existing dispute and the 'Operational Creditor' accepted that the parties have settled the matter.
"The application preferred by Respondent under Section 9 of the 'I&B Code' is dismissed. Learned Adjudicating Authority will now close the proceeding. The 'Corporate Debtor' (company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect," it ordered.
The NCLAT also asked NCLT, Kolkata to fix the fee of 'Interim Resolution Professional' for the period he has functioned with direction to the corporate debtor to pay the fee.
As per the law laid down by the Supreme Court in Innovative Industries Ltd Vs ICICI Bank and Ors, the moment there is a pre-existing dispute, the application under Section 9 cannot be admitted.