NCLAT rejects appeal, says fears of settlement breach misconceived and confirms resolution professional's litigation undertakings only

The NCLAT dismissed the appeal, holding that the apprehension of the appellant regarding the corporate debtor's negotiations or settlements in breach of HC orders was misconceived. The Tribunal noted that the resolution professional had undertaken to conduct all litigation in accordance with its directions, including matters pending before the Bombay HC, as reflected in prior orders and correspondence. It clarified that only Prayer-G of the appellant's application had been considered in this appeal, found no ground to amend its earlier order, and disposed of the appeal without further relief.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether directions could be issued to restrain the corporate debtor from negotiating or entering into any settlement, compromise or agreement in relation to its property or share capital contrary to specified High Court orders and affecting the applicant's shareholding and directorship.

2. Whether further directions were required to ensure that the pending suit and orders of the High Court, concerning the applicant's 50% shareholding and related property rights, are included in the information memorandum and related CIRP documents.

3. Whether any modification of the impugned order of the Adjudicating Authority was warranted in light of the earlier order of the Appellate Tribunal and the undertakings of the IRP/RP.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Restraining the corporate debtor from settlements/transactions contrary to High Court orders and affecting applicant's rights

Interpretation and reasoning

The Adjudicating Authority had refused Prayer-G on the ground that the issues raised therein were required to be dealt with under the provisions of the Insolvency and Bankruptcy Code, 2016. The Appellate Tribunal confined itself to examining only Prayer-G in the appeal and clarified that no other issue was being considered. The Tribunal noted that the subject matter of the restraint sought was integrally connected with the conduct of the corporate insolvency resolution process (CIRP) and with rights and obligations to be governed by the Code.

Conclusions

The Tribunal did not interfere with the refusal of Prayer-G by the Adjudicating Authority and left the issues covered by that prayer to be dealt with under the applicable provisions of the Insolvency and Bankruptcy Code, 2016.

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Issue 2: Necessity of specific directions to include pending High Court suit and orders in the information memorandum

Legal framework (as discussed)

The Tribunal referred to its earlier order in an intervention application, wherein the IRP had stated, with reference to Section 25 of the Insolvency and Bankruptcy Code, that the IRP/RP is bound to provide details of all material litigation and ongoing proceedings in the information memorandum, and to represent and act on behalf of the corporate debtor in pending proceedings.

Interpretation and reasoning

The applicant contended that, even if Prayer-G was not allowed, directions were necessary to ensure that the pending suit before the High Court and the various orders passed therein be specifically included in the information memorandum. The Tribunal examined its earlier order dated 15.07.2024, where:

* The applicant had sought directions to incorporate in the information memorandum the existence of the suit, the fact that 50% shareholding was the subject matter of that suit, and that any order in the insolvency proceedings would be subject to further orders of the High Court.

* The IRP had expressly stated that, irrespective of such prayers, he was bound to provide details of all material litigation and that the information memorandum would contain all relevant information including material pending litigation, rendering the specific prayer infructuous.

* The Tribunal had recorded the IRP's statement that, when the information memorandum is prepared, details of all litigation including the orders passed by the High Court would be duly reflected, and disposed of the application on that basis.

The Tribunal further noted that, subsequent to that order, a letter was written to the RP and directions were given, and it was specifically indicated that all relevant litigation pending before the High Court, along with the orders passed, would be referred to, as also confirmed in an e-mail communication.

On this basis, the Tribunal held that the apprehension of the appellant that the litigation and orders might not be included in the information memorandum or related documents was misconceived, as the RP had already undertaken to reflect all such litigation and orders.

Conclusions

No further or fresh directions were required to mandate inclusion of the High Court suit and orders in the information memorandum or CIRP documents, since the obligation and undertaking of the IRP/RP to include all material litigation, including the Bombay High Court proceedings and orders, had already been recorded and accepted by the Tribunal in the earlier order.

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Issue 3: Need for modification of the impugned order in light of prior Tribunal order and RP's undertaking

Interpretation and reasoning

The Tribunal clarified that, in the present appeal, it was considering only Prayer-G made by the appellant in the underlying application and that no other issue was examined. In view of:

* The prior order of the Tribunal dated 15.07.2024, disposing of the intervention application after recording the IRP's obligation and undertaking to include all relevant litigation and High Court orders in the information memorandum; and

* The subsequent communications and directions confirming that all relevant litigation and orders would be reflected,

the Tribunal held that the appellant's concerns were already addressed. Accordingly, there was no basis to amend or modify the impugned order of the Adjudicating Authority.

Conclusions

The impugned order required no amendment or modification. The appeal was disposed of, with the Tribunal reiterating that only Prayer-G was considered and that, in light of the existing undertakings and previous order, no further relief or alteration of the order was warranted.

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