2019 (2) TMI 1676 - AT - Insolvency and Bankruptcy

Admissibility of application - Initiation of Corporate Insolvency Resolution Process - Corporate debtor - HELD THAT - In view of the fact that the parties have now settled the matter prior to the constitution of the Committee of Creditors and the Adjudicating Authority has failed to notice that the principal amount has already been paid and original plea of the Corporate Debtor was that no interest was payable in terms of the Agreement/ Contract we set aside the impugned order dated 19th December 2018 passed by the Adjudicating Authority. In effect order (s) passed by the Adjudicating Authority appointing Interim Resolution Professional declaring moratorium freezing of account and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action if any taken by the Interim Resolution Professional including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 9 of the I B Code is dismissed. The Adjudicating Authority will fix the fee of Interim Resolution Professional and the Corporate Debtor will pay the fees of the Interim Resolution Professional for the period he has functioned - Appeal allowed.

Summary

Issues:
1. Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 filed by an Operational Creditor against a company.
2. Settlement of the claim between the parties before the constitution of the Committee of Creditors.
3. Legal implications of settling a claim before the formation of the Committee of Creditors.

Analysis:
1. The judgment pertains to an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an Operational Creditor against a company, seeking initiation of the Corporate Insolvency Resolution Process. The Adjudicating Authority admitted the application, leading to an appeal by the company, challenging the order.

2. Following submissions made by the company's counsel, it was revealed that the principal amount had already been paid, and no interest was payable as per the terms of the agreement. Additionally, the parties had settled the claim before the constitution of the Committee of Creditors. The Respondent, the Operational Creditor, acknowledged the payment of the principal amount and interest, confirming the settlement by agreement.

3. Citing the Supreme Court's observations in a related case, the judgment emphasized the importance of consulting the Committee of Creditors before allowing a corporate debtor to settle its claim. Since the settlement occurred prior to the formation of the Committee of Creditors and the Adjudicating Authority failed to note the payment of the principal amount, the impugned order was set aside. Consequently, all orders appointing the Interim Resolution Professional, declaring moratorium, freezing accounts, and related actions were deemed illegal and dismissed.

4. The company was released from the obligations imposed by the law, allowing it to operate independently through its Board of Directors immediately. The Adjudicating Authority was tasked with determining the fee of the Interim Resolution Professional, to be paid by the company for the period of service. The appeal was allowed with the specified observations, and no costs were awarded in the circumstances of the case.