2020 (7) TMI 299 - AT - Insolvency and Bankruptcy

Seeking exit from CIRP Process - Respondent No. 2 had arrived at a Settlement with the 'Corporate Debtor' - HELD THAT - The only conclusion deducible is that the factum of Respondents having inter se arrived at a Settlement prior to passing of the impugned order and constitution of the 'Committee of Creditors' is nothing but a ploy designed to defeat the legitimate interests of other stakeholders. This factual position is clearly borne out by the sequence of events unfolded by record. As the 'Corporate Debtor', despite commitments, failed to settle with all seven Applicants, this could probably be the reason for the Respondents not to seek exit from the 'Corporate Insolvency Resolution Process' before passing of the impugned order as the Settlement inter se them, though not proved to have manifested in the form of a Settlement Agreement, was not all encompassing. This factual position would not warrant exercise of inherent powers under Rule 11 to allow exit of the 'Corporate Debtor' from 'Corporate Insolvency Resolution Process' as the legitimate interests of all other stakeholders, including the Intervenors whose claims have been admitted and the 'Committee of Creditors' is in seisen of the same would be seriously jeopardised. This is apart from the fact that in the event of settlement being entertained the Intervenors whose claims have been admitted will have to face the prospect of garnering the support of threshold limit for initiating de novo 'Corporate Insolvency Resolution Process' against the 'Corporate Debtor' in terms of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 dated 28th December, 2019. The ground urged, apart from not being established by any supporting evidence, does not warrant exit from 'Corporate Insolvency Resolution Process' on the projected ground of Settlement inter se the Respondents, having been arrived at prior to the constitution of the 'Committee of Creditors'. Public interest would not warrant such course to be adopted - Appeal dismissed.

Summary

Issues:
1. Admittance of application under section 7 of the Insolvency and Bankruptcy Code, 2016 against a Corporate Debtor.
2. Appeal challenging the order of admission based on a settlement between the Financial Creditor and the Corporate Debtor.

Issue 1:
The Respondent No. 2, a Financial Creditor, filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, which was admitted by the Adjudicating Authority. The Corporate Debtor, a Real Estate Company, had failed to deliver possession of a commercial space despite delays and non-payment of interest. The Adjudicating Authority found the debt and default to be valid, leading to the initiation of the Corporate Insolvency Resolution Process. The appeal challenging this admission was based on a settlement between the Financial Creditor and the Corporate Debtor.

Analysis:
The case involved the admission of an application under section 7 of the Insolvency and Bankruptcy Code against a Real Estate Company, the Corporate Debtor, due to delays in possession and payment issues. The Adjudicating Authority found the debt and default to be legitimate, leading to the initiation of the Corporate Insolvency Resolution Process. The appeal challenging this admission was based on a settlement between the Financial Creditor and the Corporate Debtor, which was claimed to have occurred before the admission order. The key argument was whether the settlement should allow for an exit from the insolvency process.

Issue 2:
The appeal focused on the ground that a settlement had been reached between the Financial Creditor and the Corporate Debtor before the constitution of the Committee of Creditors. The Appellate Tribunal considered the legality and implications of this settlement in the context of the insolvency resolution process and the interests of other stakeholders, including other Financial Creditors with pending claims.

Analysis:
The Appellate Tribunal analyzed the settlement claim in detail, considering the timing of the settlement in relation to the admission order and the constitution of the Committee of Creditors. It was noted that no concrete evidence of the settlement was presented before the Adjudicating Authority, and the lack of disclosure raised suspicions about the legitimacy of the settlement claim. The Tribunal highlighted the importance of protecting the interests of all stakeholders and ensuring that public interest is not compromised by premature exits from the insolvency resolution process.

In conclusion, the Appellate Tribunal dismissed the appeal, finding no merit in the argument for an exit from the Corporate Insolvency Resolution Process based on the claimed settlement between the Financial Creditor and the Corporate Debtor. The Tribunal emphasized the need to consider all relevant factors and protect the interests of all stakeholders in insolvency cases, ultimately prioritizing public interest over individual settlement claims.