2026 (2) TMI 786 - AT - IBC

Revival of insolvency petition after failed OTS upheld, yielding valid admission of the creditor's insolvency application.

Revival of the insolvency petition after failure of an agreed One Time Settlement (OTS) was upheld where acceptance letters reserved creditor remedies on ... Admission u/s 7 of the Insolvency and Bankruptcy Code - acknowledgement of debt by one-time settlement (OTS) - restoration of company petition - restoration under Rule 11 of the NCLAT Rules - fraudulent misrepresentation in OTS - proof of debt and default - appointment of interim resolution professional and imposition of moratorium - HELD THAT:- In our opinion, it is classic case of fraud played by the CD upon the FC when it made the financial creditor believe that it is ready and willing to settle the dispute on a particular amount which was accepted by the FC and filed the application under Section 12A of the Code for withdrawal of the petition but once the petition was withdrawn, the post-dated cheques given by the CD were all bounced because of the insufficient funds and the settlement fell flat on the ground. The conduct of the CD in the past was the same when repeated opportunities were given to it to make the payment of the dues of the Bank/FC by accepting the OTS Scheme but the amount involved was never paid by the CD which is enough to show that it never had any intention to pay its debts despite the fact that repeated opportunities were given and at one point of time even the application filed under Section 7 was allowed to be withdrawn on the misrepresentation of the CD that it will pay of all its debts. We do not appreciate the conduct of the CD at all. In so far as the admission of the application is concerned, it is suffice to mention that the CD has not denied its liability (debt) and default committed by it in non-payment of amount due because of which opportunities were given to the CD to make the payment by way of OTS despite the fact that the account of the CD was classified as NPA as far back as on 12.04.2016. Thus, once the debt and default are proved beyond any doubt, the application filed under Section 7 has rightly been admitted by the Tribunal. We do not find any error in the impugned order. The appeal is found to be totally without any merit and the same is hereby dismissed though without any order as to costs. Issues: Whether the admission of the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (restored after failure of an OTS and revival of the petition) was valid and whether the restoration/revival of the petition and consequent admission were justified.Analysis: The facts show prior admission into CIRP, subsequent withdrawal of the petition under Section 12A following an agreed OTS, and later failure of that OTS with returned/dishonoured post-dated cheques and unpaid agreed sums. The acceptance letters for the OTS expressly provided that default would result in withdrawal of concessions and entitlement of the financial creditor to recover dues, including by initiating legal or NCLT processes. Restoration of the petition was effected in accordance with the applicable procedural rule and was not challenged. The existence of admitted debt and default, combined with repeated unsuccessful settlement attempts and bounced instruments, supports restoration and revival of the original application. Prior authority treating an OTS as amounting to acknowledgement of debt was applied as relevant precedent to the facts. The conduct indicating misrepresentation and inability or unwillingness to pay under the OTS further supported revival and admission under Section 7.Conclusion: The admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 following restoration of the petition was valid; the application was rightly admitted and the appeal against that admission is dismissed.