Structured Summary of the Opinion (Through Virtual Mode) — 14.07.2020

Factual and Procedural Background

This matter arose from I.A. No. 1534 of 2020 filed by the Appellant under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 seeking recording of a settlement reached between the parties. A settlement dated 7 July 2020 between the Appellant and Respondent No. 1 was annexed to the application and its execution and contents were admitted by the parties.

The corporate insolvency resolution process (CIRP) had been commenced at the instance of the Respondent (Operational Creditor) pursuant to an impugned order dated 27 May 2020 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench V. Consequential orders following that impugned order included imposition of a moratorium and the appointment of an Interim Resolution Professional (IRP).

The parties reached an amicable settlement and, according to the record, the Committee of Creditors (CoC) was not constituted. The constitution of the CoC had been put on hold on 17 June 2020. It was recorded that the Interim Resolution Professional worked for not more than one and a half months.

Legal Issues Presented

1. Whether, in view of the settlement between the parties and in exercise of Rule 11 of the NCLAT Rules, 2016, the Tribunal should set aside the impugned order dated 27 May 2020 and allow exit from the corporate insolvency resolution process.
2. Whether the application filed under Section 9 of the Insolvency & Bankruptcy Code (I&B Code) should be disposed of as withdrawn in light of the settlement.
3. What orders should be made regarding fees and expenses claimed by the Interim Resolution Professional where the claim is challenged as grossly inflated.
4. Whether the Operational Creditor retains the right to seek revival or restoration of CIRP proceedings on default of payment terms under the Settlement Agreement.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal proceeded on the factual premise that the parties had executed and admitted a Settlement Agreement (dated 7 July 2020) providing for full and final settlement of all claims by the Corporate Debtor accepting Rs. 4,25,00,000/-. Because the Settlement Agreement had been executed and the Committee of Creditors had not been constituted, the Tribunal invoked its powers under Rule 11 of the NCLAT Rules, 2016 to deal with the application for recording the settlement.

Relying on the Apex Court's verdict in Swiss Ribbons (2019) which, as stated in the opinion, permits exit from CIRP in appropriate circumstances, the Tribunal set aside the impugned NCLT order dated 27 May 2020 (which had initiated CIRP, declared moratorium and appointed the Interim Resolution Professional) and allowed exit from the corporate insolvency resolution process in terms of the Settlement Agreement.

The Tribunal further recorded that the application under Section 9 of the I&B Code was to be disposed of as withdrawn and directed the Adjudicating Authority to close the proceeding. It released the Respondent Company from the rigours of the law and allowed it to function independently through its Board of Directors with immediate effect.

Addressing the Resolution Professional's claim for fees and expenses, the Tribunal described the claim as "grossly inflated" and observed relevant factual points: the constitution of the CoC had been put on hold on 17 June 2020 and the Interim Resolution Professional had worked for not more than one and a half month. Having regard to those facts and the settlement terms, the Tribunal fixed the consolidated fee and costs at Rs. 7,00,000 (inclusive of Rs. 2,00,000 already paid by the Operational Creditor), to be borne equally by both parties as per the Settlement Agreement.

The Tribunal preserved enforcement rights in a limited manner: if the Settlement Agreement's payment instalments are not adhered to, the Operational Creditor is at liberty to seek revival or restoration of the CIRP proceedings before the Adjudicating Authority.

Holding and Implications

Core Ruling: The appeal and the application under Rule 11 were disposed of by allowing exit from the corporate insolvency resolution process and by setting aside the impugned order dated 27 May 2020. The Section 9 application was disposed of as withdrawn and the Adjudicating Authority was directed to close the proceeding.

Consequential orders and direct effects on the parties:

• The orders passed by the Adjudicating Authority appointing the Interim Resolution Professional, declaring moratorium and all other orders pursuant to the impugned order and actions taken by the Resolution Professional were set aside.
• The Respondent Company was released from the rigours of the insolvency law and allowed to function independently through its Board of Directors with immediate effect.
• The Tribunal fixed consolidated fees and costs relating to the CIRP at Rs. 7,00,000 (inclusive of Rs. 2,00,000 already paid), to be borne equally by the parties pursuant to the Settlement Agreement.
• In case of default in payment as per the Settlement Agreement, the Operational Creditor may seek revival/restoration of the CIRP before the Adjudicating Authority.

Broader implications: The Tribunal expressly relied on the Supreme Court decision in Swiss Ribbons to justify an exit from CIRP in consequence of a settlement. The opinion does not indicate that it intended to create any new precedent beyond applying the settled principle as cited. No separate order as to costs was made.

Disposition: The appeal is disposed of in terms of the Settlement Agreement. No order as to costs.

Bench: Justice Bansi Lal Bhat (Acting Chairperson), Justice Anant Bijay Singh (Member, Judicial), Dr. Ashok Kumar Mishra (Member, Technical).