NCLAT overturns insolvency order, releases Corporate Debtor

The National Company Law Appellate Tribunal set aside the order admitting an application for Corporate Insolvency Resolution Process under Section 9 of the Insolvency & Bankruptcy Code due to a settlement agreement between the parties and the absence of a Committee of Creditors. Consequently, all related orders were declared illegal, and the Corporate Debtor was released from proceedings to operate independently. The Adjudicating Authority was tasked with determining the Interim Resolution Professional's fee, to be borne by the Corporate Debtor. The appeal was allowed with directions, closing the proceedings without costs to any party.

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Issues: Application under Section 9 of Insolvency & Bankruptcy Code for Corporate Insolvency Resolution Process, Settlement agreement between parties, Pre-existing disputes, Constitution of Committee of Creditors, Legality of orders passed by Adjudicating Authority.

Analysis:
The judgment pertains to an appeal filed by the Director/Shareholders of a company, the Corporate Debtor, against the admission of an application under Section 9 of the Insolvency & Bankruptcy Code by the Adjudicating Authority. The application was filed by the Operational Creditor, 'Agarwal Industries Pvt. Ltd.', seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor, 'Amit Feeds Limited'. The appeal was heard by the National Company Law Appellate Tribunal.

During the proceedings, it was brought to light that a settlement agreement had been reached between the parties on 08.02.2019, with a Demand Draft prepared for payment in favor of the Operational Creditor. The Constituted Attorney of the Operational Creditor acknowledged the settlement and confirmed that there were pre-existing disputes between the parties, which had been resolved through the settlement agreement. Notably, the Committee of Creditors had not been constituted at the time of the appeal.

Considering the settlement reached between the parties and the absence of a constituted Committee of Creditors, the Appellate Tribunal set aside the impugned order dated 08.02.2019. Consequently, all orders passed by the Adjudicating Authority appointing an Interim Resolution Professional, declaring moratorium, freezing accounts, and other related actions were declared illegal and set aside. The application under Section 9 of the Insolvency & Bankruptcy Code was dismissed, and the Corporate Debtor was released from the proceedings to function independently through its Board of Directors.

Furthermore, the Adjudicating Authority was directed to determine the fee of the Interim Resolution Professional, with the Corporate Debtor being responsible for payment for the period of their functioning. The appeal was allowed with the mentioned observations and directions, with no costs imposed on any party involved. The judgment thus concluded by closing the proceedings and granting relief to the Corporate Debtor to resume operations independently.

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