2024 (3) TMI 24 - AT - Insolvency and Bankruptcy

While permitting withdrawal of Section 9 Application Adjudicating Authority did not grant liberty to the Appellant to reapproach the Adjudicating Authority in the event of breach of Memorandum of Understanding - HELD THAT - There was no undertaking by the Operational Creditor that Operational Creditor shall not pursue this matter on the basis of settlement reached between the parties. What was undertaken that in view of the settlement between the parties an application shall be filed for withdrawal/ closure of CIRP - very basis of denial to grant further liberty to the Appellant to reapproach the Adjudicating Authority was fallacious as the MoU only states that in view of the agreement between the parties both the parties shall file an application for withdrawal of Section 9 Application for which no exception can be taken and the Adjudicating Authority rightly allowed the application for withdrawal. However the MoU cannot be read to mean that the Operational Creditor has relinquished its right to make any further application before the Adjudicating Authority in event any default is committed by the Corporate Debtor. There was no occasion for declining any further liberty to the Operational Creditor to reapproach to the Adjudicating Authority at the stage when Section 9 Application was withdrawn on the basis of Section 12A Application. In the MoU between the parties neither there was any specific prayer made for revival of the CIRP nor there was any statement that Operational Creditor has relinquished its right to revive the CIRP. The learned Counsel for the Respondent has relied on judgment of this Tribunal in Amrit Kumar Agrawal vs. Tempo Appliances Pvt. Ltd. 2020 (11) TMI 993 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI . In the said case Section 7 Application was dismissed on the ground of default in payment of Settlement Agreement holding that the debt does not come under the definition of financial debt. In the above case MoU was entered on 22.09.2017 between the Appellant and the Principal Borrower where Respondent stood as Guarantor. Since cheques issued by Principal Borrower were dis-honoured on presentation the Respondent as guarantor came forward to pay the outstanding amount of Rs.86 lakhs with interest and issued two cheques in consideration of such liability. This Tribunal held that mere obligation to pay does not bring the liability within the ambit of financial debt . The above case is clearly distinguishable from the facts of the present case. In the present case MoU was entered between the parties in proceedings under Section 9 with regard to which default was committed by the Corporate Debtor. The said judgment has no application in the present case. The order of the Adjudicating Authority insofar as it declines liberty to the Applicant to reapproach the Adjudicating Authority is set aside. The Appeal is partly allowed

Summary

Issues Involved:
1. Condonation of Delay in Filing the Appeal.
2. Withdrawal of Section 9 Application under Section 12A.
3. Liberty to Reapproach the Adjudicating Authority in Case of Breach of MoU.

Condonation of Delay in Filing the Appeal:
The Appellant filed Interlocutory Application No. 5343 of 2023 seeking condonation of 14 days delay in filing the Appeal. The Tribunal, being satisfied with the reasons provided, condoned the delay and disposed of the application.

Withdrawal of Section 9 Application under Section 12A:
The Appeal was filed by the Operational Creditor challenging the order dated 21.08.2023, which allowed the withdrawal of the Section 9 Application under Section 12A based on a Memorandum of Understanding (MoU) dated 07.07.2023. The Operational Creditor claimed a default of operational debt amounting to Rs. 1,85,00,668/- plus interest. The Adjudicating Authority allowed the withdrawal but did not grant liberty to reapproach in case of breach of the MoU.

Liberty to Reapproach the Adjudicating Authority in Case of Breach of MoU:
The Appellant argued that the Corporate Debtor breached the MoU by not making the full payment and not executing the Sale Deed as agreed. The Appellant contended that liberty to reapproach should not have been foreclosed. The Respondent countered that no application could be filed to revive Section 9 proceedings for breach of the MoU.

The Tribunal examined the MoU and noted that it did not contain any undertaking by the Operational Creditor relinquishing the right to reapproach the Adjudicating Authority. The Tribunal found that the Adjudicating Authority's basis for denying further liberty was fallacious. The Tribunal referred to precedents where liberty to revive CIRP was granted in case of default in settlement terms.

Conclusion:
The Tribunal set aside the Adjudicating Authority's order to the extent it declined liberty to the Operational Creditor to reapproach the Adjudicating Authority. The Tribunal granted liberty to the Operational Creditor to revive the Section 9 Application in case of default by filing an appropriate application in accordance with law. The Appeal was partly allowed, and no order as to costs was made.