Supreme Court of India while exercising its extra ordinary power under Article 142 of Constitution of India in Lokhandwala Kataria Construction Private Limited V/s Nisus Finance & Investment Manager LLP ("Lokhandwala Case") approved the recording of Consent Terms post the admission of application for initiation of corporate insolvency resolution process (Application) under the Insolvency and Bankruptcy Code, 2016 (IBC).
In June 2017, the National Company Law Tribunal, Mumbai (NCLT) admitted the Application against financial debtor, Lokhandwala Kataria Construction Private Limited. Post the admission of the Application, the disputes between the parties came to be settled.
The parties to the Application approached the National Company Law Appellate Tribunal, (NCLAT) for withdrawing the Application and recording the Consent Terms between the parties. However NCLAT dismissed the Appeal while mainly emphasising Rule 8 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (Rules) which allows withdrawal of application only before its admission.
Aggrieved by the order passed by NCLAT, the parties approached the Apex Court, which partly upheld the order passed by the NCLAT inasmuch as lack of inherent power on part of NCLAT to allow recording of Consent Terms was concerned. However, by exercising its power under Article 142 of Constitution (which deals with Enforcement of decrees and orders of Supreme Court and orders as to discovery, etc), the Supreme Court recorded the Consent Terms between the parties as opposed to the Rule 8 of IBC Rules which restricts withdrawal of Application post its admission.
The nexus behind such restriction is that on admission of Application, other creditors get a right to participate in the resolution process of Financial Debtor and the resolution process attains the nature of a collective action by various financial creditors.
MHCO COMMENT
Lokhandwala Case as decided by the Apex Court will set a new precedent for all the financial debtors who wish to settle disputes post admission of Application. However, it may be noted that the NCLT or the NCLAT is not endowed with inherent powers under IBC. In light of the above facts and circumstances, the government may also consider amending the provisions of IBC concerning withdrawal of Application post its admission. Until then, the Parties shall have to approach Apex Court for settlement post admission of Application.
This article was released on 29 July 2017.
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