PRIOR TO CONSTITUTION OF COMMITTEE OF CREDITORS- INSOLVENCY PROCEEDINGS CLOSED

The fairly recent law relating to Insolvency i.e. the Insolvency and Bankruptcy Code, 2016 has been the talk of the legal community. The fact that the law has been new, the Adjudicating Authority i.e. National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), with their judgments are now on a path to set down precedents and elaborating on the application of the Insolvency Bankruptcy Code, 2016. The presiding judges are set on tackling the loop holes and on an endeavor to find the intention and meaning of the legislation and decode the intention of the legislators.

The NCLAT, New Delhi vide its order in Mr Ashish Garodia vs Impact Event Management and Anr  dated 08.02.2019 allowed the appeal preferred by Director and shareholder of M/s Garodia Automobiles Pvt. Ltd. (Corporate Debtor) against the order passed by NCLT, Kolkata Bench which admitted the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 preferred by M/s Impact Event Management(Operational Creditor).

During the course of the Insolvency proceedings, it was submitted by the Counsel for the Appellant/Corporate Debtor that there was pre-existence of dispute between the parties, on which ground the application under Section 9 by the Operational Creditor was not maintainable. It was found by the Adjudicating Authority that the Operational Creditor had not disputed the submissions of the Corporate Debtor that the Operational Creditor has no dues from the Corporate Debtor, as the former failed to perform the promotional services.

The Hon’ble Court in agreement with the submissions of the Corporate Debtor regarding maintainability of the application held that same was not maintainable, due to pre-existence of a dispute.

The Hon’ble Court was informed that the parties have settled the matter, in relation to which, it was held that

“5. Further, before the constitution of the ‘Committee of Creditors’, the parties having settled the matter. It is a fit case to accept the settlement. For the reasons aforesaid, we set aside the order dated 14th January, 2019.”

In lieu of the above, the order appointing Interim Resolution Professional, declaring moratorium, publishing the advertisement in the newspaper calling for application and other orders were declared as illegal and the same were set aside.

The above judgment now gives a resort to the Corporate Debtor and Operational Creditor to arrive at a settlement, during such circumstances. It can also be beneficial for Corporate Debtor to initiate an out-of court settlement with the Creditors, before constitution of Committee of Creditors, instead of being declared an insolvent in entirety and release some burden on the Adjudicating Authorities.

Sanjana Bakshi

Senior Associate

The Indian Lawyer