2024 (5) TMI 1000 - AT - Insolvency and Bankruptcy

NCLAT upholds second insolvency petition admission under Section 7 after debtor defaults on settlement agreement

Desh Bhushan Jain, Erstwhile Director of Angel Promoters Pvt. Ltd. Versus Abhay Kumar, IRP of Angel Promoters Pvt. Ltd. & Ors.

The NCLAT dismissed an appeal challenging admission of a second petition under Section 7 of the Insolvency and Bankruptcy Code, 2016. The corporate debtor ... Admissibility of the second petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 - unpaid instalments - existence of debt and default or not - Amount paid out of the court during the pendency of this appeal to be adjusted in the amount which is stated to be due - HELD THAT:- There is no dispute that the Corporate Debtor availed the loan on interest from the Financial Creditor. Since, the instalments were not paid, the Financial Creditors filed the first petition which was admitted, moratorium was declared and IRP was appointed. In order to save itself to slip into CIRP, the CD approached the FC for a settlement which was ultimately arrived at in writing on 26.07.2018. The Financial Creditors believed the Corporate Debtor and entered into the agreement and further on the asking of the CD filed a joint application in the first petition not only to bring on record the settlement but also to withdraw the first petition being sanguine of the fact that CD would keep its words and shall honour all the post-dated cheques in time but they were not aware of the intention of the CD as it had not made payment beyond Rs. 1,10,00,000 and were still in the arrears of more than Rs. 3 Cr. The Financial Creditor then filed the second petition of the reduced debt about which the default is not in question, therefore, the Adjudicating Authority has rightly admitted the application. It is observed that if this kind of tricks, played by the CD with the FC are allowed and the plea raised by the Appellant is accepted that the second petition on the ground of settlement agreement is not maintainable then it would give a premium to the unscrupulous CD to get the petition filed under Section 7 withdrawn on the basis of the settlement which was not to be ultimately followed. Definitely, this kind of attitude and act on the part of the CD is not appreciated. Amount paid out of the court during the pendency of this appeal to be adjusted in the amount which is stated to be due - HELD THAT:- Suffice it to say that the Appellant has not brought on record any writing/ agreement in this regard that the said amount has been paid towards the adjustment of the principal amount otherwise the Financial Creditor is entitled to adjust the amount towards the payment of interest component at the first instance. There are no merit in the present appeal - the amount deposited by the Appellant in this court by way of FDR is ordered to be returned to the Appellant within a period of one month from the date of passing of this order by the Registrar after due verification. Appeal dismissed. Issues Involved:1. Admissibility of the second petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Treatment of unpaid instalments as debt and breach of settlement agreement.3. Adjustment of the amount paid out of court during the pendency of the appeal.Summary of Judgment:1. Admissibility of the second petition under Section 7 of the Insolvency and Bankruptcy Code, 2016:The appeal challenges the order dated 20.12.2023, passed by the Adjudicating Authority (NCLT, New Delhi, Bench IV), admitting an application filed u/s 7 of the Insolvency and Bankruptcy Code, 2016 by Financial Creditors against the Corporate Debtor for a resolution amount of Rs. 3,34,07,686/-. The Corporate Debtor had defaulted on a loan availed in 2015, leading to the filing of the first petition u/s 7, which was later withdrawn following a settlement agreement. However, due to subsequent defaults by the Corporate Debtor, the Financial Creditors filed a second petition u/s 7, which was admitted by the Adjudicating Authority.2. Treatment of unpaid instalments as debt and breach of settlement agreement:The Appellant argued that unpaid instalments as per the settlement agreement cannot be treated as debt and breach of the settlement agreement cannot be a ground to file an application u/s 7. The Appellant relied on the case of Raj Singh Gehlot Vs. Vistra (ITCL) India and Ors., where it was held that invoking Section 7 based on a settlement agreement is not permissible. However, the Tribunal found this argument unconvincing, noting that the first petition was based on the debt due and default committed by the Corporate Debtor, not on the settlement agreement. The Tribunal emphasized that allowing such arguments would encourage unscrupulous behavior by Corporate Debtors, undermining the purpose of the Code.3. Adjustment of the amount paid out of court during the pendency of the appeal:The Appellant contended that Rs. 87 Lac paid out of court should be adjusted against the principal amount due. The Tribunal rejected this argument, stating that there was no agreement indicating that the amount was paid towards the principal. The Financial Creditor is entitled to adjust the amount towards the interest component first, as per Section 60 of the Contract Act, 1872.Conclusion:The Tribunal dismissed the appeal, finding no merit in the arguments presented by the Appellant. The amount deposited by the Appellant in the court by way of FDR is ordered to be returned to the Appellant within one month from the date of the order.