In a recent case, the National Company Law Appellate Tribunal ("NCLAT") permitted exit or withdrawal from Corporate Insolvency Resolution Process ("CIRP") after Interim Resolution Professional ("IRP") was appointed and moratorium was imposed in the case. The said order by NCLAT acted as a relief to corporate debtors, as it has paved way for out of Court settlement between the disputed parties. The said order was passed by NCLAT in the case of Vivek Bansal vs Burda Druck India Pvt. Ltd. & Anr.1 wherein, Vivek Bansal, Dynamic Textbooks Printers Ltd is the Petitioner ("Corporate Debtor") and Burda Druck India Pvt. Ltd, the Respondent ("Operational Creditor").
It would be relevant to mention herein that the initiation of CIRP has been temporarily suspended in the wake of COVID-19 pandemic via IBC Ordinance 2020. Thus, the present ruling can also prove to be beneficial for those entities already facing CIRP as they can now resort to out of Court settlements.
Brief facts of the case
In the present case, the Respondent or Operational Creditor, in order to recover the monetary claims, filed an application for initiation and commencement of CIRP under Section 9 of Insolvency and Bankruptcy Code, 2016 ("Code")2 against the Corporate Debtor. The said application for initiation of CIRP was admitted and accepted by National Company Law Tribunal, Delhi Bench five ("NCLT") leading to appointment of IRP under Section 16 of the Code and thereby, imposition of moratorium under Section 14.
As per Section 21 of the Code, Committee of Creditors ("COC") shall be constituted within 30 days from the appointment of IRP. In this case, order for appointment of IRP and moratorium imposition was passed on May 27, 2020. Conforming to the NCLT's order, IRP was appointed and moratorium imposed. However, before the constitution of Committee of Creditors, the parties to dispute ended up settling the issue cordially, whereby, both Operational Creditor and Corporate Debtor agreed to settle at Rs. 4,25,00,000/- as final amount of claims. Consequently, the parties to dispute formed and entered upon a settlement agreement on July 7, 2020, failing which, the Operational Creditor shall have the right to revive and initiate CIRP.
NCLAT allows Exit from CIRP
Subsequent to the settlement agreement, the Corporate debtor furnished an appeal to NCLAT3, under Rule 11 of NCLAT Rules, 20164 with respect to quashing of order passed on May 27, 2020. Relying on the case of Swiss Ribbons Pvt. Ltd. vs. Union Of India on 25 January 20195, NCLAT set aside the order passed by NCLT on May 27, 2020 releasing the corporate debtor and thereby, the company, from the holds of law and CIRP proceedings.
The Court not only permitted withdrawal from insolvency proceedings but also disposed of the case with respect to terms and conditions of settlement agreement. The adjudicating body ordered removal of IRP, revival of Board of Directors and the company itself. The NCLAT, nevertheless, also ruled that, if Corporate debtor failed to adhere to the terms and conditions of settlement agreement, the concerned operational creditor shall have the right to approach NCLT, New Delhi (Bench five) for revival of CIRP proceedings.
The concerned verdict opens up a window for Corporate Debtor to depart from CIRP proceedings and opt for out of Court settlement. Considering the suspension of initiation of CIRP as per IBC Ordinance 2020 and economic crisis due to COVID-19 pandemic, the ruling comes as a relief in these distressed times for corporations as now the parties to the dispute can settle on their own terms with better value of claim and within less span of time. In addition to this, it would also permit corporate debtors to retain their company.
1. Company Appeal (AT) (Insolvency) No. 552 of 2020
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