NCLT Chennai Dismisses Malicious Intent Application Under Insolvency Code

The National Company Law Tribunal, Chennai, dismissed an application seeking to declare applications filed under Sections 7 and 95 of the Insolvency and Bankruptcy Code, 2016 as having malicious intent. The Tribunal emphasized its inability to compel the Financial Creditor to accept or reject an One Time Settlement (OTS) proposal, stating that non-acceptance does not hinder the Tribunal's jurisdiction. The decision underscores the Tribunal's limited authority in influencing OTS proposals and highlights the significance of adhering to statutory timelines and maintaining the separation of powers between the Tribunal and the Committee of Creditors in insolvency proceedings.

---

---

Issues:
Application to declare applications filed with malicious intent under Sections 7 and 95 of IBC, 2016.

Analysis:
The judgment by the National Company Law Tribunal, Chennai, involved an application seeking to declare applications filed under Sections 7 and 95 of the Insolvency and Bankruptcy Code, 2016 as having malicious intent. The Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor was initiated earlier, with the Applicants being Personal/Corporate Guarantors. The Financial Creditor, exercising a significant vote share in the Committee of Creditors (CoC), received an One Time Settlement (OTS) proposal from the Applicants for withdrawal of the CIRP. Despite a revised OTS proposal submitted by the Applicants, the CoC did not communicate its decision within the stipulated time frame, leading to allegations of malice by the Financial Creditor.

The Applicant contended that the CoC's failure to respond to the OTS proposal within the prescribed period indicated malice on the part of the Financial Creditor. However, the Tribunal noted that it cannot compel the Financial Creditor to accept or reject an OTS proposal. The non-acceptance of the OTS proposal does not prevent the Tribunal from adjudicating on applications under Sections 7 and 95 of the IBC, 2016. Ultimately, the Tribunal dismissed the application seeking to declare the Respondents' applications as having malicious intent, citing the inability to direct the Financial Creditor's decision on the OTS proposal as a key factor in the decision.

Therefore, the judgment underscores the Tribunal's limited authority in influencing the acceptance or rejection of OTS proposals by Financial Creditors and affirms that such decisions do not impede the Tribunal's jurisdiction to rule on insolvency applications under the IBC, 2016. The dismissal of the application highlights the importance of adherence to statutory timelines and the separation of powers between the Tribunal and the CoC in insolvency proceedings.

---