2020 (2) TMI 1498 - HC - Insolvency and Bankruptcy

Commission of offence under Section 74(3) of the Code - petitioners have challenged the same on the ground that non-compliance on their part was not due to their fault but, for non-compliance of the condition precedent for payment of the upfront amount by the other stakeholders - HELD THAT - Without expressing any opinion with regard to the exercise of power under Section 482 of Cr.P.C. on merit and as it is stated that the Opposite Party-Board has already been approached for withdrawal of the prosecution, it is observed that the Opposite Party-Board may take a decision on the application of the petitioners for withdrawal of the prosecution in the changed circumstances within three weeks hence but, the same should not be construed as an expression of any opinion by this Court or mandate to the Board for withdrawal of the prosecution. It is left open to the wisdom of the complainant to take a decision as they deem fit and proper on the prayer made by the petitioners. Liberty is also given to the petitioners to approach this Court under Section 482 of Cr.P.C., if they are so advised, seeking quashment of the proceeding on merit as this Court has not decided the petition under Section 482 of Cr.P.C. for quashment after the decision of the Board - Application disposed off.

Summary

Issues:
1. Quashment of order of cognizance under Section 482 of Cr.P.C.
2. Allegation of offence under Section 74(3) of the Insolvency and Bankruptcy Code, 2016.
3. Compliance with Resolution Plan and payment of upfront amount.
4. Legal framework and objectives of the Insolvency and Bankruptcy Code.
5. Request for withdrawal of complaint and quashing of prosecution under Section 482 of Cr.P.C.

Analysis:

1. The petitioners sought quashment of the order of cognizance dated 06.06.2019 passed by the District & Sessions Judge under Section 482 of Cr.P.C. The petitioners challenged the order alleging commission of offence under Section 74(3) of the Insolvency and Bankruptcy Code, 2016, and the proceeding thereunder against them.

2. The petitioners, a Singapore-based company, were the successful Resolution Applicant for Corporate Debtors. They deposited ?50 Crores as per the Resolution Plan approved by NCLT. However, a complaint was filed against them for non-payment of upfront amount leading to allegations under Section 74(3) of the Code. The petitioners contended that non-compliance was due to other stakeholders' failure to fulfill conditions precedent, making the complaint premature and liable to be quashed.

3. The Opposite Party argued that the Code aims to reform the insolvency and bankruptcy regime, restore debtor companies, maximize creditor returns, and promote economic growth. The Resolution Applicant, the petitioners, breached the payment terms exposing them to criminal prosecution under Section 74(3) of the Code. The Opposite Party contended that the petitioners' lack of bonafides in complying with the Resolution Plan justified the cognizance taken against them.

4. The petitioners' counsel argued that the upfront amount was paid after the complaint was filed, and NCLAT allowed withdrawal of the complaint. They requested quashing of the prosecution. The Opposite Party opposed this, citing that once a prima facie offence is established, the court should not interfere under Section 482 of Cr.P.C.

5. The NCLAT's observation allowed the Resolution Applicant to withdraw the complaint. The Court observed that the Opposite Party-Board may decide on the withdrawal application within three weeks. The Court did not express an opinion on quashing the prosecution under Section 482 of Cr.P.C. and granted liberty to the petitioners to approach the Court if needed after the Board's decision.

In conclusion, the Court disposed of the case, granting a certified copy of the order and allowing the petitioners to seek quashment of the proceeding under Section 482 of Cr.P.C. after the Board's decision within three weeks.