Nature Of Financial Debt Doesn’t Change Upon Breach Of Consent Terms: NCLAT Delhi

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Priyal Kantilal Patel v IREP Credit Capital Pvt. Ltd. & Anr., has held the nature of financial debt would not change on account of breach of the consent terms. The Bench has upheld the initiation of CIRP against a Corporate Debtor upon a subsequent Section 7 petition, which was filed after the Corporate Debtor breached the consent terms entered into in the earlier Section 7 petition. Background Facts Rajesh Landmark Projects Pvt. Ltd. (“Corporate Debtor/Appellant”) had issued debentures to IREP Credit Capital Pvt. Ltd. (“Financial Creditor”). On 20.12.2019 the Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. Subsequently, consent terms were entered between the Parties with other stakeholders, as per which the Financial Creditor agreed to withdraw the Petition. Further, in the event of default of the consent terms, the Financial Creditor was at liberty to revive the Section 7 petition. Thereafter, the Corporate Debtor defaulted in making payments as per the Consent Terms. The Financial Creditor instead of reviving earlier petition, filed a fresh Section 7 petition seeking initiation of CIRP against the Corporate Debtor. On 10.10.2022 the Adjudicating Authority admitted the Section 7 petition and initiated CIRP against the Corporate Debtor. The Corporate Debtor challenged the order dated 10.10.2022 before NCLAT. Contentions Of Appellant The Corporate Debtor/Appellant argued that breach of consent terms cannot be treated as a financial debt. NCLAT Verdict The Bench observed that the Financial Creditor had not filed the subsequent petition over default in the settlement agreement. Rather, the subsequent petition was filed over original financial debt, which was extended by the Financial Creditor to the Corporate Debtor. “The mere fact that in earlier company petition, consent terms was arrived, which consent terms was breached by the corporate debtor, the financial debt which was claimed by the financial creditor would not be wiped out nor the nature and character of financial debt shall be changed on account of breach of the consent terms. Permitting such interpretation shall be giving premium to the corporate debtor who breach the consent terms.” The Bench held that the nature of financial debt would not change on account of breach of the consent terms. Since the consent terms provided for restoration of Section 7 petition, the mere fact that instead of reviving the earlier petition a fresh petition has been filed by the Financial Creditor, would be no ground for rejection of the subsequent petition. The Bench dismissed the appeal and granted liberty to the Corporate Debtor to file an application under Section 12A of IBC in case any settlement is arrived between the Parties. Case Title: Priyal Kantilal Patel v IREP Credit Capital Pvt. Ltd. & Anr. Case No.: Company Appeal (AT) (Insolvency) No. 1423 of 2022 Counsel for Appellant: Mr. Abhijeet Sinha, Mr. Nitin Mishra and Mitali Gupta, Mr. Akash Chatterjee, Advocates. Counsel for Respondent: Mr. Vikas Mohta, Mr. Pranav Sarthi, Advocates for R1 Mr. Pranjit Bhattacharya, Ms. Raj Sarit Khare, Advocates for R-2. ClickHere To Read/Download Order

Nature Of Financial Debt Doesn’t Change Upon Breach Of Consent Terms: NCLAT Delhi

Pallavi Mishra

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