2022 (1) TMI 714 - Tri - Insolvency and Bankruptcy

Settlement Agreement Not a Defense: Tribunal Upholds Default Date

Transrail Lighting Limited Versus Zapdor Engineering Private Limited

The National Company Law Tribunal dismissed the application seeking directions to withdraw or dismiss the case as infructuous and not maintainable. The ... Seeking withdrawal of application for initiation of CIRP - maintainability of case in view of the settlement and in view of the provisions of section 10A of the IBC, 2016 - HELD THAT:- No application for initiation of CIRP of a Corporate Debtor under section 7,9 and 10 of IBC, 2016 shall be filed for any default arising on or after 25th March, 2020 along with that it was also clarified that provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020. Whereas, in the present case in hand the main matter has been filed under section 7 of IBC, 2016 and the default as well as the filing of the application under section 7 has taken place prior to 25th March 2020. The applicant's contention that as both the parties entered into a settlement therefore, there has been novation of the MOU/Agreement dated 28.08.2017 and as a result the previous date of default be rescheduled cannot be accepted since the liability to pay has occurred much before the settlement and before the moratorium under section 10A set in. On a bare reading of the provision of section 7(5) clauses (a) and (b) it is amply clear that the Adjudicating Authority has two courses of action available to it. The Adjudicating Authority must either admit the application under section 7(5)(a) or it must reject the application under section 7(5)(b) of IBC, 2016. Whereas, in the present case in hand the settlement agreement agreed between the parties is only a subsequent arrangement which cannot negate the occurrence of default much earlier. Therefore, the applicants' contention regarding change or rescheduling in date of default in lieu of the settlement Agreement holds no merit. Hence, the prayers by the applicant in the present application stands dismissed. Application dismissed. Issues:1. Application seeking directions to withdraw or dismiss the case as infructuous and not maintainable.2. Compliance with settlement agreement terms by the Corporate Debtor.3. Alleged demand for additional payments by the Financial Creditor post-settlement.4. Dispute over withdrawal of the case and dishonored cheques.5. Interpretation of Section 10A of the Insolvency and Bankruptcy Code, 2016.6. Adjudication of the application under Section 7 of IBC, 2016 in light of settlement agreement.Detailed Analysis:1. The application before the National Company Law Tribunal involved a request by the Corporate Debtor to direct the Financial Creditor to withdraw the petition or dismiss it due to a settlement agreement. The Corporate Debtor argued that all conditions of the settlement were met, and the case should be withdrawn. However, the Financial Creditor did not withdraw the case, leading to the dispute.2. The Corporate Debtor complied with the settlement agreement terms by making an upfront payment and providing post-dated cheques for the remaining amount. The Corporate Debtor believed that the case would be withdrawn by the Financial Creditor, as promised, on a specified date after fulfilling the settlement conditions.3. Allegations were made by the Corporate Debtor that the Financial Creditor demanded additional payments post-settlement, leading to a modified settlement agreement. The Financial Creditor encashed the post-dated cheques, which were dishonored due to financial constraints faced by the Corporate Debtor during the pandemic.4. Disputes arose over the withdrawal of the case by the Financial Creditor and the dishonor of cheques. The Financial Creditor claimed outstanding debts from before the settlement, while the Corporate Debtor argued that no debt existed post-settlement and that any new debt would require a fresh application.5. The interpretation of Section 10A of the Insolvency and Bankruptcy Code, 2016 was crucial in determining the applicability of the moratorium on the case. The Financial Creditor argued that the default predated the moratorium period, while the Corporate Debtor sought protection under Section 10A due to the settlement.6. The Tribunal adjudicated the application under Section 7 of the IBC, 2016 in light of the settlement agreement. It concluded that the settlement could not negate the occurrence of default before the moratorium period, leading to the dismissal of the application seeking directions based on Section 10A. The Tribunal emphasized that the settlement agreement did not alter the original default date for the case under Section 7.