2023 (1) TMI 1421 - AT - IBC

Revival of Section 7 application - Admission of Section 7 application filed by the Financial Creditor - default in settlement agreement - HELD THAT - Present is a case where application under Section 7 was filed by the Financial Creditor claiming its financial debt. On said application, Corporate Debtor entered into settlement due to which the application was withdrawn with liberty to revive if any default is committed. The revival of the application under Section 7 was consequent to the liberty granted by the Court. When application was revived, the application which was filed initially by the Financial Creditor was restored and treated to be the original Section 7 application. It cannot be said that what is to be considered was only the default under the settlement agreement. Default in settlement agreement is only a by-product which has permitted revival of Section 7 application but in no manner affect the claim in the original application which is financial debt under Section 7 application. In the present case Application under Section 7 was filed claiming financial debt and it was not initiated on the basis of any settlement agreement. Settlement agreement which was entered during the pendency of the insolvency proceedings was breached, hence, what is revived is original application. The Adjudicating Authority has considered in detail the facts and circumstances before coming to conclusion that there is debt and default on part of the Corporate Debtor - there is no ground to interfere with the impugned order - Appeal dismissed.

Summary

Issues:
Admission of Section 7 application based on default in settlement agreement.

Analysis:
The appeal was filed against the order admitting a Section 7 application by the Adjudicating Authority. Initially, a settlement took place between the Financial Creditor and the Corporate Debtor, leading to the withdrawal of the application. However, as the settlement agreement was not complied with, a restoration application was filed by the Financial Creditor. The Adjudicating Authority allowed the restoration application, leading to the revival of the original Section 7 application. The Financial Creditor argued that the debt arising from the breach of the settlement agreement should not be considered a financial debt for admission under Section 7. They relied on a previous judgment for this contention.

Upon review, the Tribunal found that the revival of the Section 7 application was a result of the liberty granted by the Court in the settlement agreement. The default in the settlement agreement was a trigger for revival but did not change the nature of the original application as a financial debt under Section 7. The Tribunal distinguished the present case from the cited judgment where the application was based solely on the default in the settlement agreement, unlike in the current scenario where the application was originally filed for a financial debt. The Adjudicating Authority thoroughly examined the facts and concluded that there was indeed a debt and default on the part of the Corporate Debtor, leading to the dismissal of the appeal.

In summary, the Tribunal upheld the Adjudicating Authority's decision to admit the Section 7 application, emphasizing that the default in the settlement agreement did not alter the nature of the original application as a financial debt under Section 7. The judgment cited by the Appellant was deemed distinguishable as it involved a different scenario where the application was solely based on the breach of the settlement agreement, unlike the present case where the application was initially for a financial debt. The appeal was ultimately dismissed, affirming the Adjudicating Authority's order.