Consent Terms Validated in Debt Settlement Leading to Discharge & Petition Withdrawal

The Tribunal validated the Consent Terms for settlement of outstanding debt, leading to the discharge of the Corporate Debtor and withdrawal of the Insolvency Petition under Section 12A of the IBC. The recent Supreme Court decision emphasized the importance of consulting the Committee of Creditors before settling claims, but in the absence of a constituted committee, the Tribunal allowed the withdrawal based on the settlement agreement and relevant factors, ultimately consigning the petition to records.

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Issues:
1. Validity of Consent Terms for settlement of outstanding debt.
2. Discharge of Corporate Debtor in view of settlement.
3. Withdrawal of Insolvency Petition u/s. 12A of IBC.
4. Guidelines from recent Supreme Court decision on settlement of claims before constitution of Committee of Creditors.

Analysis:

1. The application was submitted by a suspended director of the Corporate Debtor seeking validation of Consent Terms dated April 11, 2019, for settlement of outstanding debt. The terms included declaration of validity, discharge of the Corporate Debtor, and disposal of the petition based on the settlement agreement.

2. A petition under Section 7 of the IBC was filed by a Financial Creditor for an outstanding loan amount against the Corporate Debtor, which was admitted, and an Interim Resolution Professional was appointed. A Consent Term was executed for settlement, including the payment of a Manager Cheque and reimbursement of fees, leading to the withdrawal of the claim against the security held by the Financial Creditor.

3. The Interim Resolution Professional confirmed the settlement terms, stating that no creditor had lodged any claim. As per Section 12A, the Adjudicating Authority can allow withdrawal with the approval of 90% voting share of the Committee of Creditors. Since only one Financial Creditor was involved, the Petitioner was entitled to withdraw the Insolvency Petition.

4. Referring to a recent Supreme Court decision, the Tribunal highlighted the necessity of consulting the Committee of Creditors before settling claims in a collective proceeding. However, in the absence of a constituted committee, the NCLT can allow or disallow withdrawal or settlement applications after considering all relevant factors. Following these guidelines and provisions of Section 12A, the Tribunal allowed the withdrawal of the Insolvency Proceedings, effectively consigning the petition to records.

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