2019 (3) TMI 880 - AT - Insolvency and Bankruptcy

Corporate insolvency resolution process - pre-existing dispute - HELD THAT - Taking into consideration that the parties have settled the matter prior to constitution of the Committee of Creditors and pre-existing dispute as emanating from the FIR enclosed at page 138, we set aside the impugned order dated 17th December, 2018. In effect, order (s) passed by Adjudicating Authority appointing Resolution Professional , declaring moratorium, freezing of account and all other order (s) passed by Adjudicating Authority pursuant to impugned order and action taken by the Resolution Professional , including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by the 1st Respondent under Section 9 of the I&B Code is dismissed. The Adjudicating Authority will now close the proceeding. The 2nd Respondent Company is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.

Summary

Issues:
1. Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiating corporate insolvency resolution process.
2. Existence of a pre-existing dispute related to the supply of material.
3. Settlement between parties before the constitution of the Committee of Creditors.
4. Legal implications of settling a claim before the formation of the Committee of Creditors.
5. Payment of fees and costs to the Resolution Professional.

Analysis:
1. The Respondent filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor, which was admitted by the Adjudicating Authority. The Appellant argued a pre-existing dispute regarding the supply of material and cited a Supreme Court decision emphasizing the importance of consulting the Committee of Creditors before settling a claim.

2. The Respondent and the Resolution Professional acknowledged that the parties had settled the matter before the constitution of the Committee of Creditors. The Resolution Professional mentioned a payment due for fees and costs. After hearing both parties and considering the settlement before the formation of the Committee of Creditors and the pre-existing dispute, the impugned order was set aside.

3. Consequently, all orders passed by the Adjudicating Authority appointing the Resolution Professional, declaring a moratorium, freezing accounts, and other related actions were deemed illegal and set aside. The application under Section 9 of the I&B Code was dismissed, allowing the 2nd Respondent Company to function independently through its Board of Directors immediately.

4. Regarding the fees and costs of the Resolution Professional, the Corporate Debtor was directed to pay ?8.37 lakhs within two weeks. The appeal was allowed with the mentioned observations and directions, with no specific order as to costs due to the circumstances of the case.