NCLAT Stays The Constitution Of COC In The CIRP Of Bombay Rayon Fashions Ltd.

Background Facts

Vikash Parasprampuria ("Operational Creditor/Respondent") is the Sole Proprietor of Chiranjilal Yarn Traders and had supplied goods to Bombay Rayon Fashions Limited ("Corporate Debtor"), which is a public listed company. Nine invoices were raised by the Operational Creditor which was accepted by the Corporate Debtor without any demur, protest or dispute and part payments were also made towards certain invoices. When the Corporate Debtor failed to release balance payments, the Operational Creditor sent him reminder letters followed by a Demand Notice under Section 8 of the IBC dated 05.11.2020, which was delivered but no response was received from the Corporate Debtor.

Proceedings Before NCLT Mumbai

The Operational Creditor had filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016 ("IBC") before the NCLT Mumbai Bench, seeking to initiation of CIRP against the Corporate Debtor, for defaulting in payment of Rs.1,60,87,838/-, wherein the principal amount was Rs. 97,87,220/- and remaining was interest. The date of default was 01.11.2020.

To justify the compliance of Rs. 1 Crore threshold for initiating CIRP, the Operational Creditor placed reliance on the NCLAT judgment in Pavan Enterprises v. Gammon India, Company Appeal No.148 of 2018, wherein it was held that "If in terms of any agreement interest is payable to the Operational of Financial Creditor then the debt will include interest". Therefore, the threshold of Rs. 1 Crore was being met by including the interest component. No reply was filed by the Corporate Debtor.

Decision Of The NCLT

The NCLT Mumbai Bench vide an order dated 07.06.2022 had observed that the Corporate Debtor had time and again by its letter, invoices and by making part payment acknowledged its liability. The Bench held that the application under Section 9 was complete in all respects as required by law, as there was a default by the Corporate Debtor in payment of debt amount. Accordingly, the application was admitted and CIRP was initiated against the Corporate Debtor. Mr. Santanu T Ray was appointed as the Interim Resolution Professional.

Proceedings Before NCLAT

The Appellant, Prashant Agarwal, had filed an appeal against the order dated 07.06.2022 before the NCLAT. The Respondent has proposed settlement by submitting that it would be satisfied if the Appellant pays the principal amount alongwith the CIRP cost towards settlement. The Appellant is yet to seek instructions on the settlement proposal.

The Bench has stayed the constitution of CoC in the CIRP of the Corporate Debtor, while the CIRP process would otherwise continue. The matter has been next listed on 07.07.2022 for the Appellant to accept or reject the settlement proposal of the Respondent.

Case Title: Prashant Agarwal v Vikash Parasprampuria, Company Appeal (AT) (Ins.) No. 690 of 2022

Counsel For Petitioner: Mr. Abhijeet Sinha, Mr. Palzer Moktan, Mr. Nausher Kohli, Ms. Dipti Das, Mr. Sunil Vyas, Mr. Deep Morabia, Advocates

Counsel For Respondent: Mr. Viraj Parikh, Mr. Madhur Mahajan, Mr. Saurabh Pandya, Advocates for R-1. Ms. Rubina Khan for IRP.

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