TaxTMI 
TaxTMI 
TaxTMI 
2021 (12) TMI 683
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....ndent to settle the claims within three months. The NCLAT found no merit in the appeal Company Appeal (AT) (Insolvency) No 649 of 2020 against the NCLT's order. 4 The issue which arises for adjudication before this Court is whether, in terms of the provisions of the IBC, the Adjudicating Authority can without applying its mind to the merits of the petition under Section 7, simply dismiss the petition on the basis that the corporate debtor has initiated the process of settlement with the financial creditors. 5 The genesis of the case arises from a Master Agreement to Sell "Master Agreement" which was entered into between the respondent, IDBI Trusteeship Limited and Karvy Realty (India) Limited "Facility Agent" on 22 June 2014, in order to raise an amount of Rs. 50 crores for the development of 100 acres of agricultural land. Under the terms of the Master Agreement, the Facility Agent was to sell the plots to prospective purchasers against the payment of a lumpsum amount. The respondent was then required to pay interest at the rate of 25 per cent per annum compounded annually to the purchaser, under the Master Agreement. It has been stated that in furtherance of the Master Agreemen....
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...., due to its alleged inability to refund the principal amount along with interest. The respondent is also alleged to have sought an extension of the loan period by 12 months, with an assurance that the principal amount would be repaid in three equal instalments in the 13th, 14th and 15th months. 10 However, on 26 April 2019, 11 out of the 17 appellants before this Court (together with 72 other petitioners) instituted a petition under Section 7 of the IBC before the Adjudicating Authority, due to the respondent's default in making the re-payment of an amount of Rs. 33,84,32,493. 11 On 11 September 2019, the Adjudicating Authority adjourned the proceedings on the ground that the parties were attempting to resolve the dispute. A further extension of time for exploring the possibility of a settlement was sought on 24 October 2019 by the respondent, which was granted by the Adjudicating Authority and the petition was posted for 5 November 2019. On 22 November 2019, the respondent informed the Adjudicating Authority that it was exploring the possibility of a settlement, following which it was observed that any proposal for settlement should be furnished to the petitioners well before t....
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....d an amount of Rs. 27.25 crore has been paid to them. 13 claims/Petitioners before us have been settled, 40 are in the process of settlement and 39 pending settlement. Thus the process of settlement appears to be progressing in all seriousness. Instead of examining all the individual claims in detail, we would like to dispose of the instant case by directing the Corporate Debtor to settle all the remaining claims sincerely within a definite lime frame." Thus, the Adjudicating Authority decided to dispose the petition based on the following factors: (i) that respondent's efforts to settle the dispute were bona fide, as evinced by the fact that they had already settled with 140 investors, including 13 petitioners before it; (ii) the settlement process was underway with 40 other petitioners; (iii) the procedure under the IBC was summary in nature, and could not be used to individually manage the case of each of the 83 petitioners before it; and (iv) initiation of CIRP in respect of the respondent would put in jeopardy the interests of home buyers and creditors, who have invested in the respondent's project, which was in advanced stages of completion. In disposing of the petition, the....
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.... concession has to be given in adherence to the timelines set in terms of the impugned order. Be-that-as-it-may, this situation may also have to be addressed by the Adjudicating Authority, if approached by a claimant whose claim has not been settled so far. It is not disputed that the resolution of disputes relating to claims, more particularly of Allottees in Housing Projects, has to be given primacy and pushing the Corporate Debtor into liquidation would only be the last option. 6. In view of the foregoing discussion and also bearing in mind that the settlement process set in motion at the pre-admission stage is supported by the Consent Terms filed by some of the stakeholders, though it may not be all encompassing, this appeal would not lie. We accordingly hold that the appeal is not maintainable. There being no legal infirmity in the impugned order, the appeal is dismissed." The Appellate Authority's decision to dismiss the appeal and uphold the Adjudicating Authority's order was thus based upon the following considerations: (i) the NCLT decided to dismiss the petition under Section 7 at the 'pre-admission stage' itself, since the settlement process was underway; (ii) the NCL....
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.... No 4783 of 2021 and IA No 97193 of 2021 seeking impleadment in the proceedings by ten individuals who are similarly placed to the appellants. Some of these individuals were also original petitioners before the NCLT. 15 We have heard Mr Srijan Sinha, Counsel for the appellants and Ms Aakanksha Nehra, Counsel for the respondent. 16 On behalf of the appellants, the principal challenge is on the ground that: (i) The Appellate Authority as well as the Adjudicating Authority have acted beyond the scope of their jurisdiction under the IBC, and thus their orders are liable to be set aside since they were coram non judice. Reliance has been placed upon the judgment of this Court in Embassy Property Developments (P) Ltd. v. State of Karnataka (2020) 13 SCC 308 in support of this proposition; (ii) The impugned orders are contrary to the mandate of Section 7 of the IBC. This ground has been sought to be substantiated by urging as follows: (a) The orders of the Adjudicating Authority and the Appellate Authority are contrary to the principles enunciated in the judgment of this Court in Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407, paras 28 and 30 ("Innoventive Industries")....
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....s stamp of approval on the judgment of the Adjudicating Authority. In doing so, Adjudicating Authority and Appellate Authority have acted as courts of equity, which is not prescribed by the IBC. In support of this proposition, reliance has been placed upon the judgment of this Court in Pratap Technocrats (P) Ltd. and Others v. Monitoring Committee of Reliance Infratel Limited and Another13 ("Pratap Technocrats"); (c) In any case, out of 83 petitioners before the Adjudicating Authority, only 2021 SCC OnLine SC 569, paras 37, 47 and 50 had entered into a settlement. As a result, there was no settlement with the remaining 70 petitioners. Moreover, even in respect of the financial creditors with whom the respondent had entered into a settlement, the respondent had failed to comply with the settlement even before the passing of the impugned order; (d) Further, the direction by the Adjudicating Authority to the respondent to settle all individual claims is beyond its jurisdiction, as a judicial authority cannot dispose of a petition with a direction to settle a dispute. At the highest, a proceeding may be adjourned in order to enable the parties to explore the possibility of a settle....
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....of the IBC. 17 On the other hand, the respondent counters by submitting that: (i) The present appeal has been filed by the appellants to obviate the procedural requirements of Section 7 of the IBC. It has been urged: (a) The petition under Section 7 was instituted by the first appellant on behalf of himself and 82 other petitioners/proposed purchasers. Out of these 83 petitioners, only 7 of the original petitioners (including the first appellant) approached the NCLAT in appeal. The present appeal has been filed by the first appellant on behalf of the following persons: i. First to seventh appellants, who were parties before the NCLT and the NCLAT; ii. Eight and ninth appellants, who were not parties to the original petition under Section 7 but had filed an appeal before the NCLAT; iii. Tenth, eleventh, fifteenth and sixteenth appellants, who were parties before the NCLT but not before the NCLAT; and iv. Twelfth to fourteen and seventeenth appellants, who were neither parties before the NCLT nor the NCLAT; The reduced number of litigants establishes that the respondent has made efforts to settle the disputes with many of the proposed purchasers; (b) Further, the Par....
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....ed purchasers, despite the real-estate industry being severely affected due to the COVID-19 pandemic; and (iii) The respondent should not be pushed to insolvency merely because a few of its alleged creditors are not willing to settle. In any case, the appellants are merely speculative investors and are not allottees within the meaning of Section 5(8)(12) of the IBC, and thus they have no claim under Section 7 of the IBC. On the above hypothesis, it has been submitted that the appellants are utilising the process to facilitate recovery whereas the primary focus of IBC is to ensure revival and continuation of the corporate debtor, and to protect it from corporate death by liquidation. 18 The rival submissions will now be considered. 19 At the very outset, there is a factual question in relation to the settlements which have been made by the respondent with the present appellants. The respondent has alleged that settlements have been reached with the eighth, fourteenth and sixteenth appellants and agreed amounts have been paid in full. Further, settlements were arrived at with tenth, twelfth, thirteenth and seventeenth appellants and cheques have been handed over to them, but the....
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....; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3): (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from ....
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.... the first part, empowers the Adjudicating Authority to admit the application where it is satisfied that: (i) a default has occurred; (ii) the application under sub-Section (2) is complete; and (iii) no disciplinary proceeding is pending against the proposed resolution professional; Clause (b), which is the second part, empowers the Adjudicating Authority to reject the application where it is satisfied that: (i) default has not occurred; or (ii) the application under sub-Section (2) is incomplete; or (iii) a disciplinary proceeding is pending against the proposed resolution professional. Under sub-Section (7), the Adjudicating Authority has to communicate its order of acceptance or rejection to the financial creditor and the corporate debtor or the financial creditor, as the case may be. In accordance with sub-Section (6), the CIRP process commences from the date of the admission of the application under sub-Section (5). Thus, a time limit for the completion of the CIRP within a period of 180 days (under sub-Section (1) of Section 12, subject to a further extension under sub-Section (3)) commences from the date of the admission of the application to initiate the process. 24 On a b....
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....e corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. [...] 30. On the other hand, as we have seen, in t....
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....with law. The Adjudicating Authority's decision was also upheld by the Appellate Authority, who supported its conclusions. 27 The Adjudicating Authority has clearly acted outside the terms of its jurisdiction under Section 7(5) of the IBC. The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute. 28 Undoubtedly, settlements have to be encouraged because the ultimate purpose of the IBC is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation. As the Statement of Objects and Reasons accompanying the introduction of the Bill indicates, the objective of the IBC is to facilitate insolvency resolution "in a time bound manner" for maximisation of the value of assets, promotion of entrepreneurship, ensuring the availability of credi....
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.... adjudicatory authority and appellate authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, the IBC was introduced in order to overhaul the insolvency and bankruptcy regime in India. As such, it is a carefully considered and well thought out piece of legislation which sought to shed away the practices of the past. The legislature has also been working hard to ensure that the efficacy of this legislation remains robust by constantly amending it based on its experience. Consequently, the need for judicial intervention or innovation from NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC..." 31 In the synopsis which has been appended to the paper book, a tabulated statement has been appended for the purpose of indicating the status of the settlement process. The statement is reproduced below: Sl. No. Name Settlement Proposed Date of Proposal Accepted/ Rejected Defaulted in Settlement Date of Default 1 E.S. Krishnamurthy Yes 14.12.2019 Rejected N.A. N.A. 2 Dhwani Sanghvi Yes 14.12.2019 Re....