In a recent judgment of the Hon'ble Supreme Court dated 24th July, 2017, consent terms between a corporate debtor and a financial creditor have been taken on record subsequent to the admission of the Company Petition by the National Company Law Tribunal ("NCLT"). In the present case, Nisus Finance & Investment Managers LLP ("Financial Creditor"), in the capacity of a facility agent under a Debenture Trust Deed, filed an Application under Section 7 of the Insolvency & Bankruptcy Code, 2016 ("Code") against Lokhandwala Kataria Constructions Private Limited ("Corporate Debtor"). One Vista Homes Private Limited, a group company of the Corporate Debtor, had issued certain redeemable debentures. Accordingly, the said Debenture Trust Deed was executed wherein the Corporate Debtor was one of the guarantors with respect to redemption of said debentures and the Financial Creditor was the facility agent to ensure returns to the debenture holders. Vista Homes Private Limited failed to repay and therefore the Financial Creditor filed the Company Petition before NCLT, Mumbai Bench, against the Corporate Debtor. Vide an order dated 15th June, 2017, NCLT admitted the Company Petition and appointed an Interim Resolution Professional. Thereafter, the Corporate Debtor approached the National Company Law Appellate Tribunal ("NCLAT") against the order of admission of the Company Petition. Before the NCLAT both the parties submitted that since a settlement had been arrived at between them, the Financial Creditor may be allowed to withdraw the Company Petition. By an order dated 13th July, 2017, the NCLAT considered the provisions of the Code and held that Rule 8 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 allows an Application filed under Section 7 of the Code to be withdrawn, but only before admission of the Application. NCLAT further held that the inherent power under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, cannot be exercised by it since Rule 11 has not been adopted for the purpose of the Code. The parties then approached the Hon'ble Supreme Court challenging the order of NCLAT. The Hon'ble Supreme Court exercised its inherent powers under Article 142 of the Constitution and allowed the Consent Terms between the Corporate Debtor and the Financial Creditor. It is pertinent to note that in its order, the Hon'ble Supreme Court has also confirmed that NCLAT could not exercise the inherent powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016.
This update is authored by Clasis Law, Clyde & Co's associated firm in India
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.