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Can a stranger to the proceedings under Section 7 of the IBC, be allowed to revive the petition once the main petition is withdrawn on the grounds of settlement?

Case Details: Company Appeal (AT) (Ins) No. 310 of 2023 NLCAT New Delhi

Canara Bank v. TRN Energy Pvt. Ltd. &Ors

CIRP was initiated against the Corporate Debtor, on an application by the Operational Creditor under Section 9 of the IBC. The IRP later filed an IA for withdrawal of the main petition which was allowed by the adjudicating authority.

However due to breach of the terms of settlement between the parties, the Operational Creditor applied for revival of the CIRP under Rule 11 of the NCLT confers inherent authority on the NCLT to seek revival of the withdrawn CIRP. This was allowed by the adjudicating authority, and the authority relied on the decision of Hon’ble NCLAT in Pooja Finlease Ltd. Vs. Auto Needs (India) Pvt. Ltd. & Anr. by order dated 18.07.2022 in which the Hon’ble NCLAT has revived the application taking into consideration the terms of settlement which contained a clause for revival in case of failure to abide by the terms of settlement by any of the parties.

After the revival, the IRP one again filed for withdrawal of the main petition under Section 12A r/w Section 60(5) of the Code and Regulation 30A(1)(a) of the IBBI regulations, on the ground of settlement between the debtor and the operational creditor.

While the aforesaid application was pending before the adjudicating authority, a financial creditor submitted its claim to the IRP. The IA was allowed, and there was a failure on the IRP to inform the adjudicating authority about the claim of the financial creditor.

The aggrieved Financial creditor attempted to revive the main application on the ground that IRP has failed to discharge his statutory duty in accordance with law in not brining to the notice of the Adjudicating Authority. The IRP in reply admitted that it was erroneously mentioned before the Adjudicating Authority that no claim was received.

The adjudicating authority asked the financial creditor to file a fresh Section 7 application,because RP was discharged from his duties. And this order was appealed against by the aggrieved financial creditor.

The Appellants argued that:

1. An order obtained under Section 12A by misleading the Adjudicating Authority is no-nest in law - relied on Shree Maheshwar Hydel Power Corporation Vs. Entegra Ltd. &Ors. (CA (AT) (Ins) No. 480 of 2023).

2.Respondents cannot be given premium of their misdeeds by dismissing the application filed by the Appellant who has been unnecessary relegated to its remedy to file an application under Section 7/

3.Relying on Jai Kishan Gupta Vs. Green Edge &ors. CA (AT) (Ins) No. 969-970 of 2019, it was argued that once the Code gets triggered by admission of a creditor‘s petition under Sections 7 to 9, the proceeding that is before the adjudicating authority, being a collective proceeding, is a proceeding in rem, and therefore it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim.

The respondents argued that:

1.Nothing was there before the Adjudicating Authority as a fact that any claim made by the Appellant was received by the IRP.

2.That the Appellant being a complete stranger to the main petition cannot ask for restoration of the main petition especially when the Appellant has already filed an application under Section 7 in which the pleadings of the parties are complete.

3.Once the CIRP has been withdrawn then a separate fresh application can be filed before the Adjudicating Authority and the main petition cannot be revived.

The NCLAT allowed the appeal.

Can assignee of the debt, file an application for restoration of the main company petition dismissed for non-prosecution by the original applicant?

Case details: C.A (AT) (Insolvency) No. 1485 of 2022 NCLAT New Delhi

Raj Radhe Finance Limited Vs. Shrinathji Spintx Pvt. Ltd. & Anr.

The original applicant filed an application under Section 7 of the IBC against the corporate debtor. During the pendency of the said application the financial creditor assigned the debt to the Appellant NBFC.

The financial creditor informed the assignment to the adjudicating authority.The main company petition was dismissed for non-prosecution by the Adjudicating Authority.

The Appellant filed an application to restore the main company petition. This was rejected by the adjudicating authority.

The NCLAT held that the Appellant, as an assignee, had the right to seek restoration of the main company petition and remitted the matter back to the Adjudicating Authority to restore the petition and decide it on merits after giving an opportunity of hearing to all concerned parties.

The assignment agreement gave the Appellant the legal right to file suits etc., so denying it the right to seek restoration when its status as assignee was undisputed would be absurd.

Just as a dismissed application can be restored if the petitioner shows sufficient cause for non-appearance, the Appellant should not be denied the opportunity to seek restoration of the petition dismissed for non-prosecution by the original applicant.

Under such a circumstance, the definition of the word applicant, includes the appellant who stepped into the shoes of the original petitioner.

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