2020 (1) TMI 150 - AT - IBC

Maintainability of application - initiation of CIRP - amicable settlement - breach of terms of settlement - default of post dated cheques - Appellate Tribunal directed the Appellant to file affidavit on behalf of the Promoter of the Corporate Debtor giving undertaking that the post-dated cheques will be encashed on presentation and they will not be defaulted - HELD THAT - In the light of decision of Hon ble Supreme Court in Swiss Ribbons Pvt. Ltd. Anr. Vs. Union of India Ors. 2019 (1) TMI 1508 - SUPREME COURT and in exercise of power conferred under Rule 11 of NCLAT Rules 2016 we set aside impugned order dated 3rd September 2019 passed by the Adjudicating Authority initiating Corporate Insolvency Resolution Process against M/s Jagtar Singh and Sons Hydraulics Private Limited conditionally subject to the compliance of the Terms of Settlement by the end of August 2020. Terms of Settlement as recorded by the Hon ble Mediator should be treated to be order and direction of this Appellate Tribunal to be complied by all the parties including the Promoters of M/s Jagtar Singh and Sons Hydraulics Private Limited (Corporate Debtor); Parvinder Singh Authorized Representative; Intec Capital Ltd. And Interim Resolution Professional. In the present whole process practically stands suspended for compliance of the Terms of Settlement. The Corporate Insolvency Resolution Process can be revived by the Petitioner in case of breach of Terms of Settlement or default of any post-dated cheque. On completion of compliance of terms and conditions the application under Section 7 will be deemed to have been withdrawn by Intec Capital Ltd. otherwise the order setting aside the impugned order dated 3rd September 2019 shall stand recalled and the Corporate Insolvency Resolution Process will continue - appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment were:

- Whether the initiation of the Corporate Insolvency Resolution Process (CIRP) against 'M/s Jagtar Singh and Sons Hydraulics Private Limited' was justified under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

- Whether the settlement agreement reached through mediation could be recognized and enforced by the National Company Law Appellate Tribunal (NCLAT).

- The conditions under which the CIRP could be set aside, and the implications of the settlement agreement on the ongoing insolvency proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of CIRP Initiation

- Relevant Legal Framework and Precedents: The initiation of CIRP is governed by Section 7 of the IBC, which allows financial creditors to file an application for insolvency proceedings if there is a default in repayment of the debt. The precedent set by the Supreme Court in 'Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.' was considered, which emphasizes the importance of the IBC in resolving insolvency issues efficiently.

- Court's Interpretation and Reasoning: The Tribunal initially admitted the CIRP application based on the default by the Corporate Debtor in repaying the loan installments, as evidenced by the dishonored cheques and the account being classified as a Non-Performing Asset (NPA).

- Key Evidence and Findings: The evidence included the loan agreement dated 28.03.2013, the default in payment of installments, and the subsequent classification of the account as NPA. The Tribunal found sufficient grounds to admit the CIRP application initially.

- Application of Law to Facts: The Tribunal applied Section 7 of the IBC to the facts, determining that the financial creditor had a valid claim due to the default by the Corporate Debtor.

- Treatment of Competing Arguments: The Corporate Debtor argued readiness to settle the claim, which led to the consideration of mediation as an alternative resolution mechanism.

- Conclusions: The Tribunal initially justified the initiation of CIRP based on the default but later considered the settlement agreement as a potential resolution.

Issue 2: Recognition and Enforcement of Settlement Agreement

- Relevant Legal Framework and Precedents: The Tribunal considered Rule 11 of the NCLAT Rules, 2016, which allows for the inherent power of the Tribunal to make orders necessary for meeting the ends of justice.

- Court's Interpretation and Reasoning: The Tribunal recognized the settlement agreement reached through mediation as a valid resolution of the dispute, subject to compliance with the terms outlined in the agreement.

- Key Evidence and Findings: The mediation report and the settlement terms were crucial in demonstrating that both parties had reached an amicable resolution, which included detailed payment schedules and conditions for compliance.

- Application of Law to Facts: The Tribunal applied its inherent powers under Rule 11 to set aside the CIRP, conditionally upon compliance with the settlement terms by the end of August 2020.

- Treatment of Competing Arguments: While the financial creditor initially sought insolvency proceedings, they agreed to the settlement terms, which were facilitated by the mediation process.

- Conclusions: The settlement agreement was recognized and enforced, with the Tribunal setting aside the CIRP conditionally, pending compliance with the settlement terms.

3. SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "In the fact and circumstances, in the light of decision of Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.', and in exercise of power conferred under Rule 11 of NCLAT Rules, 2016, we set aside impugned order dated 3rd September, 2019... subject to the compliance of the Terms of Settlement by the end of August, 2020."

- Core Principles Established: The Tribunal emphasized the importance of mediation and settlement as viable alternatives to insolvency proceedings, provided that all parties comply with the agreed terms. It also highlighted the Tribunal's inherent powers under Rule 11 to facilitate such resolutions.

- Final Determinations on Each Issue: The Tribunal conditionally set aside the CIRP, recognizing the settlement agreement as a binding resolution. It outlined specific conditions and timelines for compliance, with provisions for revival of insolvency proceedings in case of default.