2025 (7) TMI 1716 - AT - IBC

Appeal Dismissed for Non-Disclosure of Payment; Costs Reduced to Rs. 1,00,000 Under Rule 11

Nacre Gardens Hyderabad Limited (Formerly known as Unitech Hyderabad Township Limited) Versus Telangana State Industrial Infrastructure Corporation

The NCLAT dismissed the appeal, affirming the NCLT's decision that no dues were payable to the appellant as the entire amount demanded had been remitted ... Institution of proceeding u/s 9 of I & B Code, to be read with Rule 6 of I & B (Application to Adjudicating Authority) Rules 2016 - Operational Creditors - existence of default or not - HELD THAT:- The demand as raised in the notice under Section 8 of I & B Code, it already stood satisfied by the remittance of the entire amount and that rather, much more than the amount paid by TSIIC pursuant to the directions of Hon’ble Apex Court was much more than what was demanded by the Appellant, receipt of which has not been denied by the Appellant. Despite this, the Appellant never brought to the notice of Learned NCLT the factum of remittance of amount by TSIIC in full, till it was disclosed by TSIIC by filing a memo on 23.03.2023. Even thereafter the Appellant, after undertaking to withdraw the Company Petition did not do so despite taking 4 adjournments. The conduct of the Appellant is truly reprehensible: in fact, Learned NCLT has expressed its anguish that the factum of settlement was not brought to its notice by the Appellant and but for the memo filed by the Respondent (TSIIC), it would gone on to frame the issues for adjudication and that the Appellant chose not to withdraw and instead, chose to pursue the matter till 24.04.2023 wasting precious time of the Tribunal and public as well. Finally, the Learned Tribunal held that no due is to be paid to the Appellant and accordingly missed the Company Petition. Further, holding that since the Appellant unnecessarily prolonged the matter for more than 2 years, it is a fit case for imposing costs and accordingly imposed a cost of Rs. 5,00,000/-. There are no anomaly in the order findings and the order of Learned NCLT. However, keeping in view the pleadings of the Appellant that the management had changed, head office was disbanded, the parent company M/s. Unitech was undergoing insolvency and no proper instructions could be obtained for withdrawal of the Petition, and that inaction on its part was neither deliberate nor wanton all of which appear plausible and taking a pragmatic view, the cost of Rs. 5,00,000/-, is being directed to be reduced to Rs. 1,00,000/- which is to be deposited by the Appellant in the Bharath Kosh, within 30 days from the date of uploading of the order. And the proof of the deposit would be placed before the Registry of this Appellate Tribunal. Appeal closed. ISSUES: Whether a default exists under Section 9 of the Insolvency and Bankruptcy Code (IBC) when the alleged operational debt has been fully paid by the Corporate Debtor pursuant to a court order.Whether the initiation of Corporate Insolvency Resolution Process (CIRP) is maintainable when the debt claimed by the Operational Creditor has been discharged.Whether costs can be imposed on the Operational Creditor for pursuing a petition despite full payment of the claimed amount.Whether failure to register a Joint Development Agreement (JDA) after payment affects the liability of the Corporate Debtor or the application under Section 9.The extent to which procedural or management changes (such as change in management or non-functioning office) can mitigate the imposition of costs for delay or non-withdrawal of petition. RULINGS / HOLDINGS: The Court held that the 'plea of existence of an Operational Debt of a sum over rupees one crore due and payable by the respondent to the petitioner and that the respondent had defaulted in payment of the same, no survives' where the Corporate Debtor has fully paid the amount pursuant to the Supreme Court's order.It was ruled that the Corporate Debtor 'cannot be admitted into CIRP' under Section 9 of the IBC when the debt has been discharged in full.The imposition of costs on the Operational Creditor was upheld due to the 'unjustly prolonged' proceedings and failure to withdraw the petition despite full payment, but the amount of costs was reduced from Rs. 5,00,000 to Rs. 1,00,000 considering plausible explanations related to management changes and operational difficulties.The Court observed that non-registration of the JDA by the Corporate Debtor, despite retaining the stamp duty amount, does not hinder the payment obligations or affect the dismissal of the petition under Section 9.The Court accepted that 'inaction on its part was neither deliberate nor wanton' due to changes in management and non-functional offices, which warranted reduction of costs imposed. RATIONALE: The Court applied the statutory framework under Section 9 of the Insolvency and Bankruptcy Code, 2016 and Rule 6 of the IBC (Application to Adjudicating Authority) Rules, 2016, which require a default in payment of an operational debt for initiation of CIRP.Precedent from the Supreme Court's judgment directing full payment of dues along with interest compounded at SBI-PLR was binding, and the Corporate Debtor's compliance with this order extinguished the debt claimed.The Court relied on the principle that once the debt is discharged, the foundation for initiating insolvency proceedings under Section 9 disappears, rendering the petition unsustainable.The imposition of costs was justified on the basis of procedural abuse and unnecessary prolongation of litigation, consistent with the Tribunal's inherent powers to curb misuse of the insolvency process.The Court took a pragmatic approach by considering the operational realities of the appellant, including management changes and the parent company's insolvency, as mitigating factors reducing the quantum of costs, reflecting a nuanced exercise of discretion.