The NCLAT, New Delhi opined that the financial debt cannot be wiped out merely because consent terms were arrived at and were breached by the Corporate Debtor. Moreover, the nature and character of the financial debt cannot be changed on account of the breach of consent terms.
It was also expounded by the Bench that consent terms gave the right to revive the petitioner. Merely because a fresh application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) has been filed instead of reviving the old application, the application cannot be rejected.
Brief Facts:
A Section 7 application under the IBC was filed by the Financial Creditor(Respondent). In the said company petition, the parties entered into consent terms, according to which the Respondent agreed to withdraw the petition. As per the consent terms, if the Corporate Debtor defaulted, the consequence would be that the Respondent would be entitled to claim the entire outstanding amount along with the revival of the said petition.
Thereafter, the Corporate Debtor defaulted and instead of reviving the company petition, the Respondent filed a new petition. In the fresh petition, the debt mentioned was the one that was claimed in the original application, and details of subsequent events related to consent terms were also specified. This fresh petition was admitted by the NCLT. Hence, the present appeal.
Contentions of the Appellant:
It was argued that a breach of consent terms is not equivalent to financial debt and hence it does not give any right to file a Section 7 application. It was also contended that Respondents constituted only 12% of Debenture Holders and that there was no consensus between the Debenture Holders for filing Section 7 Application.
Contentions of the Respondent:
It was contended that the nature of debt cannot be changed as it was not a case where the Financial Creditor was trying to enforce the settlement between the parties, instead, the Application has been filed to claim the financial debt. Further, the consent terms gave the right to revive the company petition. A fresh application has been preferred based on legal advice.
Observations of the Tribunal:
It was observed that the fresh application was filed based on the original financial debt and not just on default of the consent terms.
The Tribunal opined that the financial debt cannot be wiped out merely because consent terms were arrived at and were breached by the Corporate Debtor. Moreover, the nature and character of the financial debt cannot be changed on account of the breach of consent terms.
It was also expounded by the Bench that consent terms gave the right to revive the petitioner and merely because a fresh application has been filed instead of reviving the old application, the application cannot be rejected.
The Appellate Authority held that the fact that majority debenture holders did not initiate the Section 7 Application cannot be a ground to not let the Financial Creditor file an application.
The decision of the Tribunal:
Therefore, based on the above-mentioned reasons, the Tribunal dismissed the Appeal.
Case Title: Priyal Kantilal Patel v. IREP Credit Capital Pvt. Ltd.
Coram: Justice Ashok Bhushan, Barun Mitra (Technical Member)
Case No: Company Appeal (AT) (Insolvency) No. 1423 of 2022
Advocates for Appellant: Advs. Mr. Abhijeet Sinha, Mr. Nitin Mishra, Mitali Gupta, Mr. Akash Chatterjee
Advocates for Respondent: Advs. Mr. Vikas Mohta, Mr. Pranav Sarthi, Mr. Pranjit Bhattacharya, Ms. Raj Sarit Khare
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