2020 (1) TMI 150 - AT - Insolvency and Bankruptcy

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 On completion of compliance of terms and conditions, the application under Section 7 will be deemed to have been withdrawn by Intec Capital Ltd.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

Issues involved:
1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process.
2. Appeal against the order admitting the application.
3. Settlement offer by the Promoters to the Financial Creditor.
4. Referral to mediation by the Appellate Tribunal.
5. Terms of Settlement and post-dated cheques.
6. Compliance and consequences of non-compliance.
7. Directions regarding the management of the Corporate Debtor during the settlement period.
8. Expenditure permissions and restrictions during the settlement period.
9. Provision for revival of the matter in case of default.
10. Disposal of the appeal and reporting of compliance.

The judgment pertains to an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process initiated by a Financial Creditor against a Corporate Debtor. The Adjudicating Authority admitted the application, prompting an appeal by the Promoters of the Corporate Debtor seeking to settle the claim. The Appellant expressed readiness to settle and proposed mediation, leading to the direction by the Appellate Tribunal to refrain from constituting the Committee of Creditors to facilitate an amicable settlement. The matter was referred to a former Judge of the Supreme Court for mediation. The Mediator forwarded a report with Settlement Terms, including post-dated cheques issued to the Financial Creditor.

The Appellate Tribunal directed the Appellant to provide an affidavit ensuring the encashment of post-dated cheques, holding the Promoter personally liable for any defaults. The cheques were handed over to the Financial Creditor, and the Interim Resolution Professional's fees were determined in the Settlement Terms. The Tribunal, invoking the decision in 'Swiss Ribbons Pvt. Ltd. vs. Union of India', set aside the order initiating insolvency subject to compliance with the Settlement Terms by a specified date. The Terms of Settlement were mandated to be followed by all parties involved, suspending the insolvency process pending compliance.

During the settlement period, the Corporate Debtor was permitted to cover essential expenses to maintain operations but prohibited from transferring funds to shareholders or related parties. The Tribunal outlined the process for revival in case of default and the management structure during the settlement period. The appeal was disposed of with directions for compliance reporting, with no costs awarded. The Mediation Report was to be sealed along with the record, and the appeal was scheduled for compliance reporting on a specified date.