Creditors Can Restore Corporate Insolvency Resolution Process In Case Of Default Of Settlement By Corporate Debtor

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PTO Circuits (India) Limited (‘CD') had approached ICICI Bank Limited (‘FC') for various credit facilities and availed non-fund based working capital facilities of ...
India Insolvency/Bankruptcy/Re-Structuring
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Case Details:        ICICI Bank Limited vs OPTO Circuits (India) Limited and Others [CA (AT) (CH) No. 146/2021]

Court:                   The National Company Law Appellate Tribunal, Chennai Bench (‘NCLAT')

Ratio:                    In case of breach of the terms of settlement agreement, a creditor can revive/restore the Corporate Insolvency Resolution Process (‘CIRP') before the adjudicating authority.

Judgment date:     April 28, 2022

Act/Law:                Insolvency and Bankruptcy Code, 2016 (‘IBC')

Facts:

  • OPTO Circuits (India) Limited (‘CD') had approached ICICI Bank Limited (‘FC') for various credit facilities and availed non-fund based working capital facilities of a stand-by letter of credit by way of Credit Agreement Letters.
  • Thereafter, default was committed by the CD to the tune of Rs. 1,07,85,59,340.96/-. After the default, the FC filed an application under Section 7 of the IBC before the NCLT, Bangalore Bench (‘Adjudicating Authority') to initiate the CIRP of the CD. The Adjudicating Authority admitted application by order dated March 18, 2020 and initiated the CIRP of the CD.
  • The CD filed a writ petition before the High Court of Karnataka challenging the order dated March 18, 2020 of the Adjudicating Authority admitting the insolvency petition and the High Court granted interim stay on March 24, 2020, which was subsequently extended.
  • During the subsistence of the interim stay, the CD approached the FC with a one-time settlement offer to pay a sum of Rs. 22.7 crore towards full and final settlement. On July 14, 2020 the FC accepted the CD's offer. Further to the said offer, the CD made a payment of Rs. 4.5 crores to the FC as an upfront payment and the balance amount of Rs. 18.2 crores was to be paid within a period of three months from the date of acceptance of one-time settlement. 
  • The CD filed an interim application before the Adjudicating Authority seeking termination of the CIRP initiated against it in view of the settlement arrived with the FC. The FC sought liberty to revive/restore the insolvency petition in case of any default by the CD in complying with the terms of settlement. The Adjudicating Authority vide order dated August 17, 2020 instead of allowing the FC to revive/restore the insolvency proceedings, gave liberty to the FC to file a fresh petition seeking insolvency in accordance with the provisions of the IBC.
  • The FC filed an appeal before the NCLAT against the order dated August 17, 2020 seeking setting aside of the same to the extent it gave liberty to the FC to file a fresh petition instead of reviving/restoring the CIRP in case of default of settlement by the CD.
  • In an earlier case of Vivek Bansal vs Burda Druck India Pvt. Ltd., the NCLAT gave liberty to an Operational Creditor to revive/restore the CIRP before the Adjudicating Authority. Accordingly, the order of the Adjudicating Authority, in the present case did not follow the precedent set by the NCLAT in Vivek Bansal's case.

The NCLAT vide its judgment dated April 28, 2022 allowed the appeal of the FC, in view of its judgement in Vivek Bansal's case, and observed as under:

"It is made clear that in the event of default not adhering to the terms of 'settlement agreement' as regards the payment of the outstanding instalments, the 'Financial Creditor' shall be at liberty to seek revival/restoration of the 'Corporate Insolvency Resolution Process' proceedings before the Adjudicating Authority."

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