National Company Law Appellate Tribunal
Mr Krishan Kumar Mittal vs Grj Distributors & Developers Pvt Ltd on 16 March, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNALPRINCIPAL BENCH,
NEW DELHI
Restoration Application No. 2 of 2022
in
Company Appeal (AT) (Ins) No. 579 of 2019
IN THE MATTER OF:
Krishan Kumar Mittal ...Appellant
Versus
GRJ Distributors & Developers Pvt. Ltd.
...Respondent
Present:
For Appellants : Mr. Achal Gupta, Adv.
For Respondent : Mr. Vivek Kohli, Sr. Adv. with Monish Surendran,
Juvas Rawal, Advocates
ORDER
Per: Justice Rakesh Kumar Jain: (Oral) 16.03.2023 This order shall dispose of Restoration Application No. 02 of 2022 filed in C.A (AT) (Ins) No. 579 of 2019 in which the Applicant/Appellant has prayed for the restoration of the appeal i.e. CA (AT) ((Ins.) No. 579 of 2019 which had been withdrawn by order dated 30.01.2020, on the basis of a settlement, arrived at between the parties by virtue of a memorandum of understanding dated 27.01.2020 and was brought on record
2. The brief facts of this case are that the present Appellant as an Operational Creditor filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') against the Corporate Debtor and its Directors for resolution of an amount of Rs. 4,66,284/- (principal) alongwith interest at the rate of 24% which according to the Appellant comes to Rs. 2,94,027.19/-. The total amount of default was Rs. 7,60,311.19/-. The said application was assigned CP No. IB- 1558(ND)/2018 and was dismissed by the Adjudicating Authority (National Company Law Tribunal, Bench -III, New Delhi) vide its order dated 09.04.2019.
3. Aggrieved against the order dated 09.04.2019, the Operational Creditor preferred an appeal bearing CA (AT) (Ins) No. 579 of 2019 before this Tribunal. During the pendency of the Appeal, the parties to the lis entered into a Memorandum of Understanding dated 27.01.2020 as per which the Respondent accepted that an amount of Rs. 20 Lakh is due and further agreed that in lieu of the payment of Rs. 20 Lakh they would sell/allot a 2 BHK flat, i.e. Flat No. 002 on the ground floor in Tower A-2, in Avalon Rosewood Bhiwadi, admeasuring 1250 sq. ft. (in short 'Flat'). The Memorandum of Understanding dated 27.01.2020 was duly brought on record. As proposed, this Tribunal passed the order on 30.01.2020 which read as under:-
"Advocate Sh. Achal Gupta is present for the Appellant. Advocate Sh. Aman Anand is present for the Respondent - Corporate Debtor. In this matter Section 9 Application was rejected by the Adjudicating Authority (National Company Law Tribunal, Bench - III, New Delhi) in CP No. IB-1558(ND)/2018 (Annexure -1) against which this Appeal was filed by the Operational Creditor. It is stated that the parties have now settled the dispute as per Memorandum of Understanding. The Learned Counsel tenders the copy of the Memorandum of Understanding alongwith application. Ld. Counsel is having the original of Memorandum of Understanding also for perusal. Learned Counsel for Appellant states that the Appellant wants to withdraw this appeal. In view of the memorandum of understanding dated 27.01.2020, the present appeal is sought to be withdrawn by the Appellant. The Application for withdrawal with copy of memorandum of understanding is taken on record and marked 'X' for identification. Counsel for parties agree that parties will be bound by the memorandum of understanding.
The appeal is disposed as withdrawn"
4. The Appellant has preferred this restoration application no. 02 of 2022 for the reason that the Respondent has committed a breach of memorandum of understanding as it has not honoured its commitment of allotting the flat. As a consequence, prayer has been made in the restoration application that the order dated 30.01.2020 may be recalled and the main appeal may be revived for the purpose of its adjudication on merits.
5. The Non-Applicant/Respondent has filed reply to the restoration application and submitted that this restoration application is not maintainable. He relied upon a decision rendered by this Tribunal in the case of SRLK Enterprises LLP Vs. Jalan Transolutions (India) Ltd., CA (AT) (Ins) No. 294 of 2021 decided on 08.04.2021 by a bench of two members.
6. The facts of the aforesaid Judgment cited by Counsel for the Respondent are that an application under Section 7 of the Code was filed by the Financial Creditor before the Adjudicating Authority. During the pendency of the said application, a compromise was arrived at between the parties out of the court and on the basis of which an order was passed on 09.05.2019 which read as under:-
"Ld. Counsel for the applicant submits that a compromise had been effected between the parties before constitution of the COC and they had duly informed the IRP regarding this fact. Ld. Counsel for the applicant submits that on 20th April, 2019 settlement had been arrived at and the fact was duly communicated to the Ld. IRP. The COC was constituted by 24th April, 2019.
In view of the same, Ld. Counsel presses his prayer for the termination of the CIR Process. In the view of the decision of the Hon'ble Apex Court in the matter of "Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.", W.P.(C) 99/2018, the CIR Process stands terminated.
The Corporate Debtor is released from the rigours of the moratorium and is permitted to function through its own board. Ld. Counsel for the Corporate Debtor undertakes to liquidate the expenses incurred in the CIR Process as per bills submitted by IRP.
As nothing further survives, file be consigned to records."
7. Since, the Corporate Debtor did not adhere to the terms of the settlement, therefore, the Financial Creditor filed an application bearing I.A No. 977 of 2021 in C.P. No. (IB) 1721(ND)2018 for recalling of the order dated 09.05.2019. The said application was dismissed vide order dated 26.02.2021 which read as under:-
". IA/977/2021: The Applicant has filed this Application under Section 60(5) of the IBC Code r/w Rule 11 of the NCLT Rules. Heard Ld. Counsel appearing for the Applicant and perused the averment made in the Application.
The Ld. Counsel appearing for the Applicant submitted that this Adjudicating Authority vide order dated 09.05.2019 had terminated the CIRP and the file was consigned to the records. He further submitted that the said order was passed in terms of the settlement arrived in between the parties. He further submitted that in the meantime, the Corporate Debtor has violated the terms and conditions of the settlement. Therefore, this Adjudicating Authority under Rule 11 of the NCLT Rules has power to revive the original application. He also placed reliance on the decision of the Hon'ble Supreme Court in Civil Appeal No. 324/2020 as well as decision of the NCLT, Mumbai Bench in M.A. No. 3516 of 2019.
In the light of submissions, we went through the decision on which the Petitioner has placed reliance as well as averments made in the Application. We notice that vide order dated 09.05.2019 passed by this Bench, the petition (IB)- 1721(ND)2018 was withdrawn at the instance of the Financial Creditor and the CIRP was terminated. We further notice that no liberty was given to the Petitioner to revive the application. So, considering this, we are of the considered view that since this Adjudicating Authority was not the part of the settlement arrived in between the parties, rather the settlement was arrived outside the Tribunal. It was on the submissions of the Applicant, the main petition was dismissed as withdrawn and the CIRP was terminated. Therefore, we have no reason to recall our earlier order. Accordingly, the prayer of the Applicant to recall the earlier order is hereby rejected.
Accordingly, the IA is DISMISSED."
8. Aggrieved against the order of dismissal in I.A. No. 977 of 2021 dated 26.04.2021, the Financial Creditor filed CA (AT) (Ins.) No. 294 of 2021. The said appeal was dismissed by this Tribunal with the following orders which read as under: -
"6. Going through the Impugned Order dated 26th February, 2021 which seeks to recall the Order dated 09th May, 2019 which also we have seen, wefind it difficult to take a different view from the Adjudicating Authority. There is difference between withdrawal simplicitor making statement that parties have settled. It is different when bringing the settlement on record, and making it a part of the Order of withdrawal liberty is taken and brought on record to restore the proceedings in case of default. IBC is not a recovery proceeding where because the money or part of it has not come, the party may repeatedly come to the Court. Adjudicating Authority has rightly observed that no liberty to revive was there and so declined to interfere. The Appellant would be at liberty to pursue other remedies in law.
7. We do not find any substance in the Appeal to entertain the Appeal. The Appeal is dismissed."
9. Counsel for the Respondent has submitted that the facts of the present case are similar to the facts of SRLK Enterprises LLP (Supra), therefore, the present application deserves to be dismissed.
10. On the other hand, Counsel appearing on behalf of the Appellant has also referred to a two members bench decision of this Tribunal rendered in the case of Sree Bhadra Parks and Resorts Ltd. Vs. Sri Ramani Resorts and Hotels Pvt. Ltd., 2021 SCC Online NCLAT 129. The facts of this case are that an application filed under Section 7 by the Financial Creditor was admitted on 25.08.2020. The said order was challenged in appeal to which we are not concerned. The application i.e. IBA/13/KOB/2020 was filed by the Corporate Debtor for recalling of the order dated 25.08.2020 on the ground that there has been a settlement arrived at between the parties after the admission of the application. The said application was allowed on 24.09.2020. The relevant part of the order dated 24.09.2020 read as under:-
"In view of the settlement arrived between the parties by filing FA before this Tribunal and that the IRP stated that he has received his fees, the IBA/13/KOB/2020 stands disposed of. However, the Applicant is at liberty to file fresh application if the Corporate Debtor has not complied with the conditions stipulated in the settlement as mentioned in FA"
11. Since, there was a default/breach in the settlement at the instance of the Corporate Debtor, therefore, the Financial Creditor filed an application i.e. 2/KOB/2021 by invoking Rule 11 of the NCLT Rules, 2016 for recalling of the order dated 24.09.2020 which was allowed on 28.01.2021. The relevant part of the order dated 28.01.2021, mentioned in the aforesaid decision is being reproduced for a ready reference which is as under: -
"5. In view of the above decision, the contention regarding the disqualification of the directors will not stand. The question is only the date of removal of disqualification, which have no mush relevance in this matter, as the question here is only whether the Corporate Debtor has complied with the conditions stipulated in the settlement agreement produced before this Tribunal. It is true that the IBA has been disposed of on the basis of settlement Company Appeal (AT) (CH) (Insolvency)No.06 of 2021 arrived between the parties stating that they have settled the matter stating that on 26.8.2020 settlement has been arrived for a total sum of Rs. 2,25,00,000/- (Rupees two crores twenty- five lakhs only) as full and final settlement of the entire claim between the Corporate Debtor M/s Sree Bhadra Parks and Resorts Limited on the terms mentioned in the settlement agreement. When a settlement has been arrived between the parties, it is duty bound by the Corporate Debtor to make good the payments proposed in that settlement. They cannot go back making various allegations including maintainability of the IBA after making default in the payment agreed to between the parties. The contention regarding the application is not maintainable as the order stipulates for filing a fresh application cannot be accepted because merely on technicalities the Corporate Debtor cannot wash away their hands from complying with the conditions stipulated in the final order passed by this Tribunal"
12. Aggrieved against the order dated 28.01.2021, the Corporate Debtor came to this Tribunal through an appeal i.e. CA (AT) (Ins) No. 6 of 2021 which was dismissed by this Tribunal with the following observations:-
"56.Dealing with the aspect of the Appellant's contentions that as per Rule 10 etc., of the Insolvency & Bankruptcy (Application to 'Adjudicating Authority) Rules, 2016, under the caption 'Filing' of application and application fee' that, "till such time the Rules of Procedure for conduct of proceedings under the Code are notified, the application made under Sub- Section (1) of Section 7, Sub- Section (1) of Section 9 or Section (1) of Section 10 of the Code shall be filed before the 'Adjudicating Authority' in accordance with Rules, 20,21,22,23,24 and 26 of Part III of the National Company Tribunal Rules, 2016" etc., this 'Tribunal' pertinently points out Company Appeal (AT) (CH) (Insolvency)No.06 of 2021 that the decision of the Hon'ble Supreme Court in Swiss Ribbons Pvt.Ltd. V. Union of India dated 25.1.2019 reported in Manu/SC/0079/2019 squarely applies to the facts of the present case and in fact, the Hon'ble Supreme Court at Paragraph 52 of the Judgement in Swiss Ribbons had made it clear that at any stage where the 'Committee of Creditors' is not yet constituted, a party can approach National Company Law Tribunal directly, which 'Tribunal' may in exercise of its 'inherent powers' under Rule 11 of the National Company Law Tribunal Rules, 2016 allow or disallow an application for withdrawal or settlement and as such, it cannot be said by any stretch of imagination that the 'Adjudicating Authority'(National Company Law Tribunal, Kochi Bench, Kerala) cannot pass an order to restore and revive the application in IBA/13/KOB/2020 by way of an Interlocutory Application filed by the 'Respondent'/'Financial Creditor'/ 'Applicant'. Consequently, the contra plea taken on behalf of the 'Appellant' is not acceded to by this 'Tribunal'.
INHERENT POWER:
57. It is to be mentioned that an 'inherent power' of the 'Tribunal' has its gross root in necessity and the said power can be exercised by a 'Tribunal' based on the rudimentary principle that an 'act of Court shall prejudice no person'. Further, to meet the ends of justice an 'inherent power' of a 'Tribunal' being 'Co-
extensive with need' can be exercised to render justice to the litigants. Also that, I A No. 02/KOB/2021 filed by the Respondent/Financial Creditor/Applicant to restore and Revive the Application IBA/13/KOB/2020 (filed under Section 7 of the Code) is not to be termed as one of 'Review Application' or to be confused with, in the considered opinion Company Appeal (AT) (CH) (Insolvency)No.06 of 2021 of this 'Tribunal'. Undoubtedly, the 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench, Kerala) had rightly allowed IA No.02/KOB/2021 in IBA/13/KOB/2021 on 28.01.2021 (filed under Rule 11 of National Company Law Tribunal Rules, 2016 by the 'Respondent'/ 'Financial Creditor') of course, based on proper material before it and the same requires no interference in the hands of this 'Appellate Tribunal' sitting in 'Appeal'. Looking at from any angle, the 'Appeal' sans merits.
CONCLUSION:
58. In fine, the instant Company Appeal Comp.App.(AT)(CH)(Ins) No. 06/2021 is dismissed. No costs. IA No.17 of 2021(Stay Application) is closed."
13. Counsel for the Appellant/Applicant has submitted that the decision rendered in the case of SRLK Enterprises LLP (Supra) is per incuriam because it has not referred to Rule 11 of the Rules which has been provided to meet such kind of exigencies whereas Rule 11 has been taken care of in the case of Sree Bhadra Parks and Resorts Ltd. (Supra) and therefore, the decision rendered in the said case has to be followed.
14. Besides this, it is also submitted that even looking at the equities, the memorandum of understanding was executed in writing between the parties on 27.01.2020, probably, Corporate Debtor had sensed that the appeal filed by the Appellant as an Operational Creditor may be allowed, their company may be dragged into CIRP and the reigns of the Company may be handed over to the IRP. It was therefore, they had decided that in lieu of the amount due (Rs. 20 Lakh) they would offer a flat to the Appellant within the time prescribed. However, the said undertaking was not honoured by the Corporate Debtor and thus, the Appellant/Operational Creditor was left with no alternative but to file an application for revival of the present appeal to take it to the logical end. It is also submitted that if this application is today dismissed then it will give a leverage to the unscrupulous Corporate Debtors who, in order to get out the rigours of the CIRP and imposition of the moratorium, may settle with the Operational Creditor/Financial Creditor in court and even bring settlement on record but later on they may breach the terms and conditions of the said settlement and the application which was withdrawn, even if, without seeking the permission to file a revival application, would be redundant.
15. We have heard Counsel for the parties and perused the record with their able assistance.
16. The issue involved in this case is as to whether an application for restoration or revival of appeal is maintainable in terms of Rule 11 of the Rules if the case set up by the Financial Creditor/Operational Creditor before this Tribunal or Adjudicating Authority is terminated on account of a settlement or a memorandum of understanding by the Corporate Debtor and who ultimately commits a breach?
17. Needless to mention that once the application, either filed under Section 7, 9 or 10 is admitted, the CIRP is initiated and moratorium is imposed, the Corporate Debtor would definitely try to wriggle out of the proceedings of CIRP in one way or other. One of the ways which has been chosen by the Corporate Debtor, even after, the admission of the application filed by the Operational Creditor is by entering into a memorandum of understanding. The Operational Creditor who is only interested in his dues, therefore, agrees to the terms and conditions with a legitimate expectation that the Corporate Debtor would definitely honour his words not only recorded in writing and signed but also made part of the court record. What would happen if such a Corporate Debtor makes a default deliberately or may be innocently and then contest such an application filed by the Financial Creditor/Operational Creditor for revival of the CIRP proceedings?
18. In order to deal with such an exigency, Rule 11 in the NCLT Rules has been provided which is akin to Section 151 of the CPC. Rule 11 is reproduced as under:-
"11. Inherent powers.- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal"
19. It is pertinent to mention that the inherent powers are provided in the Rules to use when there is no provision either in the Code or Regulations and Rule 11 specifically says that the Tribunal has the power to make such orders which are necessary to meet the ends of justice and to prevent the abuse of the process of the Tribunal. We ask ourselves, the kind of behaviour of the Corporate Debtor in not honouring its memorandum of understanding is not an abuse of the process of the Tribunal because on the showing of the Corporate Debtor that they would honour their commitment and make the payment etc the proceedings initiated by the Financial Creditor/Operational Creditor are terminated.
20. In our considered opinion, this provision is made only for this purpose to avoid a cake walk victory to the unscrupulous Corporate Debtors who would not honour their commitments which is entered into writing and to cheat the innocent and gullible Financial Creditors/Operational Creditors.
21. In our considered opinion the decision rendered by this Tribunal in the case of Sree Bhadra Parks and Resorts Ltd. (Supra) squarely covers this issue because the Tribunal has taken into consideration Rule 11 for the purpose of taking such steps for the purpose of saving the interest of the Financial Creditors/Operational Creditors. Whereas the decision in the case of SRLK Enterprises LLP (Supra) in which there is no reference to Rule 11 of the Rules and nothing has been observed about such a situation which has arisen because of the breach of commitment by the Respondent is in our opinion a judgment per incuriam.
22. In view of the aforesaid facts and circumstances, the restoration application is thus allowed and the proceedings in CA (AT) (Ins) No. 579 of 2019 are hereby revived.
Company Appeal (AT) (Ins) No. 579 of 2019 List this appeal on 12th April, 2023.
[Justice Rakesh Kumar Jain] Member (Judicial) [Mr. Naresh Salecha] Member (Technical) Sheetal/RR