2020 (1) TMI 473 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment - pre-existing dispute or not - HELD THAT - There is a suit pending with regard to the same claim and parties have agreed to settle the matter. In view of the fact that there was a pre-existence of dispute and parties have settled the matter before the constitution of the 'Committee of Creditors', we set aside the impugned order dated 18th October, 2019 - the 'Corporate Debtor' (company) is released from all the rigours of law and is allowed to function independently through its Board of Directors from immediate effect. The 'Interim Resolution Professional' will hand over the assets and records to the Board of Directors. Appeal allowed.

Summary

Issues:
1. Maintainability of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 due to pre-existing dispute and pending Civil Suit.
2. Settlement between the parties before the constitution of the Committee of Creditors.
3. Release of the Corporate Debtor from insolvency proceedings and handing over of assets to the Board of Directors.

Analysis:
1. The Respondent, an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor. The Adjudicating Authority admitted the application, leading to the appeal. The Appellant argued that a pre-existing dispute and a pending Civil Suit made the application under the I&B Code not maintainable.

2. During the proceedings, the Appellant expressed readiness to settle the matter with the Respondent. The Committee of Creditors had not been constituted. Both parties submitted a Terms of Settlement, indicating their agreement to settle the dispute. The Respondent and the Interim Resolution Professional confirmed the settlement and the absence of the Committee of Creditors.

3. Considering the pre-existence of a dispute and the settlement reached before the formation of the Committee of Creditors, the impugned order admitting the application was set aside. Consequently, the Corporate Debtor was released from insolvency proceedings, allowing it to operate independently through its Board of Directors. The Interim Resolution Professional was directed to transfer assets and records to the Board of Directors.

In conclusion, the appeal was allowed, and no costs were imposed. The judgment focused on the importance of settling disputes and the implications of pre-existing conflicts on insolvency proceedings, ultimately leading to the release of the Corporate Debtor from the insolvency resolution process.