2017 (7) TMI 1452 - AT - Insolvency and Bankruptcy

Appeal Dismissed: Application under Insolvency Code Admitted, Negotiations Not Enough

The National Company Law Appellate Tribunal dismissed the appeal challenging the order admitting an application under Section 9 of the Insolvency and ... Admission of insolvency application under Section 9 - withdrawal of Section 9 application before admission under Rule 8 - irrevocability of admission and entitlement of other creditors by public announcement under Section 15 read with Section 18 - power of Adjudicating Authority to close resolution process on satisfaction of creditorsAdmission of insolvency application under Section 9 - withdrawal of Section 9 application before admission under Rule 8 - irrevocability of admission and entitlement of other creditors by public announcement under Section 15 read with Section 18 - Whether settlement or payment made after admission of an application under Section 9 can justify interference with the admission and consequent moratorium. - HELD THAT: - The Appellate Tribunal affirmed that an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 may be withdrawn prior to its admission in terms of Rule 8 of the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016, but once the Adjudicating Authority admits the application and declares a moratorium, the application cannot be withdrawn by the Operational Creditor. The court reasoned that admission activates rights of other creditors to file claims pursuant to the public announcement mechanism envisaged by Section 15 read with Section 18 of the Code, and therefore a post-admission settlement between the parties does not invalidate or constitute a ground to set aside the admitted application in absence of any illegality in the admission order. The Tribunal rejected the appellant's plea that ongoing negotiations or a settlement reached after admission warranted interference, while noting that satisfying the claims of other creditors remains available as a practical remedy. The Tribunal clarified that if the corporate debtor satisfies the claims of other claimants who have filed pursuant to the public announcement, the Insolvency Resolution Professional shall place the position before the Adjudicating Authority, which may, in accordance with law, consider closing the resolution process even before its formal completion.Post-admission settlement does not warrant setting aside the admission under Section 9; withdrawal was only permissible before admission under Rule 8, and the appeal is dismissed while preserving the right to satisfy other creditors and seek closure of the resolution process.Power of Adjudicating Authority to close resolution process on satisfaction of creditors - Whether the appellant may satisfy claims of other creditors after admission and obtain closure of the resolution process. - HELD THAT: - The Tribunal observed that satisfaction of claims of other creditors who have filed claims pursuant to the public announcement can be brought to the notice of the Adjudicating Authority by the Insolvency Resolution Professional. The Adjudicating Authority retains the discretion to consider such representation and, if satisfied, may close the resolution process in accordance with law, even prior to completion of the formal resolution process.Appellant is permitted to satisfy claims of other creditors; upon such satisfaction the Adjudicating Authority may, after considering the matter in accordance with law, close the resolution process.Final Conclusion: Appeal dismissed; admission of the Section 9 application and the consequent moratorium upheld because withdrawal was not permissible after admission; appellant remains free to satisfy other creditors and approach the Adjudicating Authority for possible closure of the resolution process upon compliance with the procedure. Issues: Challenge to order admitting application under Section 9 of the Insolvency and Bankruptcy Code, 2016; Settlement between the parties after admission of the application; Withdrawal of application under Section 9; Rights of other creditors.Analysis:The judgment by the National Company Law Appellate Tribunal, New Delhi, involved a challenge to an order passed by the Adjudicating Authority admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The appellant sought to interfere with the impugned order on the grounds of negotiating a settlement with the respondent. However, the Tribunal held that negotiation alone cannot be a basis for interference unless there is illegality involved. The Operational Creditor contended that a settlement had been reached post the admission of the application, but the Tribunal highlighted that as per Rule 8 of the Insolvency & Bankruptcy (Adjudicating Authority) Rules, 2016, once an application is admitted, it cannot be withdrawn, even by the Operational Creditor, as other creditors have the right to raise claims following the public announcement.The Tribunal, based on the above reasons and the lack of merit in the appeal, rejected the prayer made by the appellant. However, it clarified that the impugned order would not hinder the appellant from satisfying and settling the claims of other creditors. If the appellant does so, the Insolvency Resolution Professional will inform the Adjudicating Authority for the closure of the resolution process. In such a scenario, the Adjudicating Authority may consider the case before the completion of the resolution process and close the matter accordingly. The appeal was dismissed with the mentioned observation, and no costs were awarded in this case.