2020 (3) TMI 1315 - AT - Insolvency and Bankruptcy

Memorandum of understanding - 9Seeking withdrawal of application filed under section 9 of the Insolvency and Bankruptcy Code 2016 (IBC) - appellant states that the settlement has been arrived at with the consent of other directors and the corporate debtor will honour all the cheques issued and will ensure that the payments due to the IRP are also promptly made - HELD THAT - The appellant and respondent No. 1 admit the contents of the memorandum of understanding and the same are taken on record. The parties would be bound by the contents of this memorandum of understanding. Keeping in view paragraph 79 of the judgment in the matter of SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. 2019 (1) TMI 1508 - SUPREME COURT exercising powers under rule 11 of the National Company Law Appellate Tribunal Rules 2016 we accept the memorandum of understanding and we allow the appeal and set aside the impugned order dated February 26 2020. Respondent No. 1 original operational creditor is permitted to withdraw the application which was filed under section 9 of the IBC. The actions taken by the IRP/RP in consequence of the impugned order are quashed and set aside - The corporate debtor is released from the rigour of law and is allowed to function independently through its board of directors - The IRP/RP will hand back the records and management of the affairs of corporate debtor to the board of directors. Appeal allowed.

Summary

Issues: Settlement between operational creditor and appellant, withdrawal of application under section 9 of IBC, acceptance of memorandum of understanding, consequences of default on memorandum of understanding.

In this judgment by the National Company Law Appellate Tribunal, the matter involved a settlement between the operational creditor and the appellant, where they had resolved their dispute. The operational creditor had filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), but decided to withdraw it after reaching a settlement with the appellant. The parties had entered into a memorandum of understanding, which was accepted and taken on record by the Tribunal.

The Tribunal, citing the judgment in the matter of Swiss Ribbons P. Ltd. v. Union of India, exercised its powers under rule 11 of the National Company Law Appellate Tribunal Rules, 2016, to accept the memorandum of understanding. Consequently, the impugned order was set aside, and the operational creditor was permitted to withdraw the application under section 9 of the IBC. The directors and shareholders of the corporate debtor were bound by the memorandum of understanding, and any default on their part could lead to contempt action.

Moreover, the Tribunal granted liberty to the operational creditor and the Interim Resolution Professional (IRP) to approach the Tribunal in case of any default by the corporate debtor in honoring the memorandum of understanding or non-payment of fees/CIRP costs to the IRP. If such default was reported, the Tribunal could recall the order and reinstate the impugned order. As a result of the Tribunal's decision, actions taken by the IRP/RP based on the impugned order were quashed, and the corporate debtor was released to function independently through its board of directors. The IRP/RP was directed to hand back the records and management of the corporate debtor to the board of directors. Ultimately, the appeal was disposed of accordingly.