Section 60(5) IBC application maintainable for corporate debtor insolvency resolution matters

NCLAT held that application under Section 60(5) IBC was maintainable as it related to insolvency resolution of corporate debtors. Appellant sought refund of Rs 3.25 crores deposited under settlement MoU. NCLAT ruled that Rs 3 crores paid for successful closure of CIRP under Section 12A was non-refundable, as promoter/director cannot claim double benefit after debt satisfaction and CIRP closure. However, Rs 25 lakhs paid for resolution plan approval was ordered to be refunded since the plan was not approved by adjudicating authority despite CoC approval. Appeal allowed in part.

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Issues Involved:

1. Whether the Appellant is entitled to a refund of Rs. 3.25 Crores deposited as part of a settlement under the MoU.
2. Whether the Application filed by the Appellant under Section 60(5) of the Insolvency and Bankruptcy Code was maintainable.
3. Whether the Adjudicating Authority erred in imposing a cost of Rs. 1 Lakh on the Appellant.
4. Whether the Adjudicating Authority's finding of collusion in the Application was justified.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of Rs. 3.25 Crores:

The Appellant sought a refund of Rs. 3.25 Crores deposited in a no-lien account as part of a settlement under a revised Memorandum of Understanding (MoU) dated 07.08.2020. The MoU was aimed at resolving the debts of the Corporate Debtor (UCL) and a related entity, JDECL. The MoU specified that Rs. 3 Crores was for the full and final settlement of JDECL's dues, and Rs. 25 Lakhs was for the Corporate Debtor's resolution plan. The CIRP of JDECL was closed following a Section 12A application, which was allowed by the Adjudicating Authority, and the entire debt of Rs. 3 Crores was discharged. The Tribunal found the Appellant's request for a refund of Rs. 3 Crores dishonest and legally impermissible, as the CIRP of JDECL had been closed by satisfying the entire debt. However, the Tribunal held that the Rs. 25 Lakhs paid for the Corporate Debtor's resolution plan should be refunded, as the plan could not be approved due to the non-deposit of the Performance Security by the Resolution Applicant.

2. Maintainability of the Application under Section 60(5):

The Tribunal considered whether the Application filed by the Appellant was maintainable under Section 60(5) of the Insolvency and Bankruptcy Code. It concluded that the Application was maintainable, as it involved questions arising out of or in relation to the insolvency resolution of the Corporate Debtors, UCL and JDECL. The Tribunal noted that the issues were related to the insolvency process and the MoU, which was part of the resolution efforts.

3. Imposition of Cost of Rs. 1 Lakh:

The Adjudicating Authority had imposed a cost of Rs. 1 Lakh on the Appellant, finding the Application to be collusive and filed at the behest of the Promoters of the Corporate Debtor. The Tribunal did not specifically address the imposition of costs in its judgment, but by modifying the order to allow the refund of Rs. 25 Lakhs, it implicitly acknowledged that the Appellant had a legitimate claim to that extent.

4. Finding of Collusion:

The Adjudicating Authority found the Application to be a collusive effort by the Appellant, who was formed by the Promoters/Directors of UCL and JDECL. The Tribunal noted that the Appellant was indeed an entity created by the Promoters for investment purposes in the resolution process. However, it did not explicitly address the finding of collusion in its final order, focusing instead on the entitlement to the refund of Rs. 25 Lakhs.

Conclusion:

The Tribunal modified the Adjudicating Authority's order to the extent that the Rs. 25 Lakhs paid on signing the MoU for the Corporate Debtor's resolution plan should be refunded to the Appellant. The rest of the order, including the closure of JDECL's CIRP and the non-refund of Rs. 3 Crores, was affirmed. The appeal was thus partly allowed, with the Financial Creditor directed to refund Rs. 25 Lakhs to the Appellant within a month. Each party was ordered to bear its own costs.

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