NCLAT upholds interim protection in insolvency proceedings, directs decision on Sections 45 and 66 applications within three months

NCLAT Principal Bench disposed of multiple appeals and contempt petition regarding CIRP proceedings involving validity of Business Service Agreement and alleged preferential/fraudulent transactions. The tribunal upheld interim protection granted to one party as SC dismissed civil appeal against the stay order dated 31.05.2023. NCLAT directed continuation of stay until decision on applications under Sections 45 and 66 of the Code, with Adjudicating Authority required to decide within 3 months. Second and third appeals by retail entity dismissed as without merit, noting transaction review audit revealed legitimate issues requiring adjudication. Contempt petition also dismissed as matter under consideration by Adjudicating Authority through pending applications.

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Issues Involved:
1. Validity and legality of the Business Service Agreement (BSA).
2. Interim relief and continuation of operations by KCPL.
3. Directions to the Resolution Professional (RP) regarding revenue and transaction audit.
4. Contempt petition for alleged violation of interim orders.
5. Intervention application for recalling/vacation of interim order.

Summary:

Issue 1: Validity and Legality of the Business Service Agreement (BSA)
The primary issue was whether the BSA is valid and legal. The RP had initiated a Transaction Review Audit to ascertain if the transactions fall under preferential, undervalued, extortionate, fraudulent, or wrongful trading under the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority found the application by KCPL premature, as the Transaction Audit was not completed. The RP was directed to secure the revenue portion owed to KCPL in an escrow account until the audit's completion and to file appropriate applications if any transactions were found to be dubious.

Issue 2: Interim Relief and Continuation of Operations by KCPL
KCPL filed for interim relief to restrain TNSI from shutting down Foodhall stores. The Tribunal granted interim protection to KCPL, allowing them to continue operations in the Foodhall stores in NCR until the main appeal and related matters were decided. The Hon'ble Supreme Court upheld this interim order, directing it to continue until the applications filed under Sections 45 and 66 of the Code by the RP were decided by the Adjudicating Authority.

Issue 3: Directions to the RP Regarding Revenue and Transaction Audit
The RP was directed to take all necessary steps to secure the portion of revenue generated by the Foodhall business owed to KCPL in a separate escrow account. The RP argued that Foodhall business was in the hands of TNSI, a separate entity. However, the Tribunal noted that TNSI is a 100% subsidiary of FRL, and the RP could change the board or take over to follow the directions issued.

Issue 4: Contempt Petition for Alleged Violation of Interim Orders
KCPL filed a contempt petition against ten respondents for alleged violation of the interim order dated 31.05.2023. The Tribunal dismissed the contempt petition, noting that the main appeal was disposed of and the matter was under consideration by the Adjudicating Authority through applications filed under Sections 45 and 66 of the Code by the RP.

Issue 5: Intervention Application for Recalling/Vacation of Interim Order
Riveria Commercial Developments Ltd. filed an intervention application for recalling/vacation of the interim order dated 31.05.2023, claiming they were not heard. The Tribunal ordered that the stay regarding KCPL shall operate only in respect of the area in its possession in the Chanakya Mall.

Conclusion:
The Tribunal disposed of the appeals and applications with directions to the Adjudicating Authority to decide the applications filed under Sections 45 and 66 of the Code by the RP within three months. The interim protection granted to KCPL was ordered to continue until the decision of these applications. The second and third appeals, as well as the contempt petition, were dismissed. The intervention application was partially allowed, limiting the stay to the area in KCPL's possession.

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