2019 (3) TMI 1643 - AT - Insolvency and Bankruptcy

Admissibility of application - Section 9 of the Insolvency and Bankruptcy Code, 2016 - constitutionality of Committee of Creditors - HELD THAT - It is clear that much prior to constitution of Committee of Creditors parties reached settlement on 26th December, 2018. The question whether in view of settlement reached between the parties prior to constitution of Committee of Creditors, the shareholders of the Corporate Debtor can be granted relief or not fell for consideration of Hon ble Supreme Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. 2019 (1) TMI 1508 - SUPREME COURT where it was held that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. In the present case, as we find that the parties have reached settlement prior to constitution of Committee of Creditors, in view of that the Appellant is entitled to derive advantage of the settlement - the application under Section 9 filed by the Operational Creditor dismissed. Appeal allowed.

Summary

Issues:
- Settlement between parties prior to constitution of Committee of Creditors
- Entitlement of the Appellant to benefit from the settlement

Analysis:
1. The appeal was filed against the order admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an Operational Creditor against a Corporate Debtor. The Appellant argued that a settlement had been reached before the constitution of the Committee of Creditors and thus the application should be dismissed.

2. The Respondent, representing the Resolution Professional, requested that if the appeal is allowed, the Appellant or Corporate Debtor should cover the resolution fee and costs incurred. The Financial Creditor, Allahabad Bank, contended that since the Committee of Creditors had been constituted, the settlement should not be accepted, labeling it an afterthought.

3. The facts revealed that a settlement was indeed reached between the parties before the constitution of the Committee of Creditors. The Appellant had made efforts towards settlement, including issuing drafts in favor of the Operational Creditor. The Deed of Settlement was finalized on 26th/27th December 2018, preceding the constitution of the Committee of Creditors on 28th December 2018.

4. Referring to the Supreme Court case of 'Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.', it was noted that once the insolvency process is triggered, any settlement must involve consultation with the overseeing body. However, in cases where the Committee of Creditors is not yet constituted, parties can directly approach the NCLT for withdrawal or settlement, subject to a decision after considering all relevant factors.

5. In light of the settlement reached prior to the constitution of the Committee of Creditors, the Appellant was deemed entitled to benefit from the settlement. Consequently, the impugned order was set aside, and the application under Section 9 was dismissed. The Appellant was directed to hand over the drafts to the Operational Creditor, with a warning that failure to do so could lead to a revival of the Operational Creditor's prayer. The appeal was allowed with no costs, and the ruling did not obstruct other Creditors from pursuing appropriate applications before the Adjudicating Authority.