Insolvency settlement before Committee of Creditors constitution justified withdrawal of the Section 7 proceedings and setting aside consequential orders.

Where a settlement between the corporate debtor and the financial creditor had attained finality and was implemented before constitution of the Committee of Creditors, the Section 7 insolvency application ought not to have been allowed to proceed. The Adjudicating Authority was expected to exercise inherent power to close the proceedings once the principal creditor accepted withdrawal, and a later request by another creditor could not override the concluded settlement. The Section 7 application was therefore permitted to be withdrawn, the insolvency process was closed, and the consequential orders appointing the Resolution Professional, declaring moratorium, freezing the account, and all steps taken under those orders were set aside.

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Issues: Whether, in view of the settlement reached with the financial creditor before constitution of the Committee of Creditors, the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ought to be withdrawn and the consequential insolvency orders set aside.

Analysis: The settlement between the corporate debtor and the financial creditor had attained finality and had been implemented before the Committee of Creditors was constituted. In such circumstances, the application under Section 7 should not have been allowed to continue, and the Adjudicating Authority ought to have exercised its inherent power to close the proceedings. Once the principal creditor accepted withdrawal, the intervening request by another creditor could not be entertained in the face of the concluded settlement.

Conclusion: The application under Section 7 was permitted to be withdrawn, the insolvency proceedings were closed, and the consequential orders appointing the Resolution Professional, declaring moratorium, freezing the account, and all actions taken pursuant thereto were set aside in favour of the appellant.

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