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

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 by the respondent. The appellant failed to disclose this payment and unnecessarily prolonged the proceedings for over two years, leading to a cost imposition. While the NCLT imposed costs of Rs. 5,00,000/-, the NCLAT reduced the cost to Rs. 1,00,000/- considering the appellant's changed management and other mitigating factors. The appellant was directed to deposit the reduced cost within 30 days, and the appeal was closed.

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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.

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